Thomas Piketty: Capital in Russia

Capital in Russia

http://piketty.blog.lemonde.fr/2018/04/10/capital-in-russia/#xtor=RSS-32280322

Thomas Piketty

Next month Karl Marx will be 200 years old. What would he have thought of the sad state Russia is in today? This is a country which never ceased to claim to be 'Marxist Leninist' throughout the Soviet period. Doubtless he would have denied any responsibility for a regime which appeared long after his death. Marx grew up in a world of censitory oppression and private property sacralization, where even the owners of slaves could be handsomely compensated if their property was violated (for 'liberals' like Toqueville this was a matter of course). It would have been difficult for him to anticipate the success of social democracy and the welfare state in the 20^th century. Marx was 30 years old at the time of the 1848 revolutions and he died in 1883, the year of Keynes' birth. Both were acute commentators on their times; we were doubtless wrong to take them for consummate theoreticians of the future.

The fact remains that when the Bolsheviks took power in 1917, their action plan were far from being as 'scientific' as they claimed. Private property was to be abolished, that was agreed. But how would the relations of production be organised and who would be the new masters? What would be the mechanisms for decision-taking and distribution of wealth in the huge State planning apparatus? For lack of a solution, resort was made to the hyper-personalisation of power and for lack of results, scapegoats were quickly found and imprisoned, with purges being the order of the day. When Stalin died, 4% of the Soviet populations was in prison, more than half for 'theft of socialist property' and other petty crimes which helped to improve one's lot. This is the 'society of thieves' described by Juliette Cadiot, and it signs the dramatic failure of a regime which wished to emancipate. To exceed this level of incarceration we have to take the situation of Black American men today (5% of Black adult men are in prison).

Soviet investments in infrastructures, education and health do indeed enable a certain amount of catching up; per capita national income stagnated before the Revolution at about 30-40% of the level in Western Europe; it rose to over 60% in the 1950s. But the lag increased in the 160s-1970s, life expectancy even began to fall (a unique phenomenon in time of peace), the regime was on the brink of implosion. The dismantling of the USSR and its productive apparatus led to a fall in standard of living in 1992-1995. Income per capita rose as from 2000 and in 2018 stands at approximately 70% of the West European level in terms of purchasing power parity (but is twice as low if one uses the prevailing rate of exchange, given the weakness of the rouble). Unfortunately inequalities have risen much more rapidly than the official statistics claim, as is demonstrated in a recent study carried out with Filip Novokmet and Gabriel Zucman (available on WID.world).

More generally, the Soviet disaster led to the abandon of any ambition of redistribution. Since 2001, income tax is 13%, whether your income be 1,000 roubles or 100 billion roubles. Even Reagan and Trump have not gone as far in the destruction of progressive taxation. There is no tax on inheritance in Russia, nor in the People's Republic of China. If you want to pass on your fortune in peace in Asia, it is better to die in the ex-Communist countries and definitely not in the capitalist countries such as Taiwan, South Korea or Japan where the tax rate on inheritance on the highest estates has just risen from 50% to 55%.

But while China has succeeded in conserving a degree of control on capital outflows and private accumulation, the characteristic of  Putin's Russia is an unbounded drift into kleptocracy. Between 1993 and 2018, Russia had massive trade surpluses: approximately 10% of GDP per annum on average for 25 years, or a total in the rage of 250% of GDP (two and a half years of national production). In principle that should have enabled the accumulation of the equivalent in financial reserves. This is almost the size of the sovereign public fund accumulated by Norway under the watchful gaze of the voters. The official Russian reserves are ten times lower – barely 25% of GDP.

Where has the money gone? According to our estimates, the offshore assets alone held by wealthy Russians exceed one year of GDP, or the equivalent of the entirety of the official financial assets held by Russian households. In other words, the natural wealth of the country, (which, let it be said in passing, would have done better to remain in the ground to limit global warming) has been massively exported abroad to sustain opaque structures enabling a minority to hold huge Russian and international financial assets. These rich Russians live between London, Monaco and Moscow: some have never left Russia and control their country via offshore entities. Numerous intermediaries and Western firms have also recouped large crumbs on the way and continue to do so today in sport and the media (sometimes this is referred to as philanthropy). The extent of the misappropriation of funds has no equal in history.

Rather than apply commercial sanctions, Europe would do better to finally go for these assets and to address Russian public opinion. Today post-Communism has become the worst ally of hyper-capitalism: Marx would have appreciated the irony but this is not a reason for putting up with it.

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John Case
Harpers Ferry, WV

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How Medicaid Work Requirements Will Harm Low-Wage Workers [feedly]

How Medicaid Work Requirements Will Harm Low-Wage Workers
https://www.cbpp.org/research/health/how-medicaid-work-requirements-will-harm-low-wage-workers

Medicaid is a critical source of health coverage for working people in low-wage jobs, which often don't offer health benefits. Sixty percent of adult Medicaid enrollees not receiving federal disability benefits through the Supplemental Security Income (SSI) program work. Of those who don't work, half live in working families, and more than 80 percent report that they are in school or unable to work due to illness, disability, or caregiving responsibilities.

Now, the Trump Administration is allowing states to take away Medicaid coverage from people who don't work a specified number of hours each month. Contrary to a common misconception, this won't just hurt non-working enrollees; it also will likely cause many working people to lose coverage.
For people with low-wage jobs, such as food services, construction, or retail, work hours often fluctuate from month to month, leaving them short of the required minimum in some months even as they exceed it in others. Low-wage jobs are also unstable, with frequent job losses that leave people unable to find work in some months. Also, some enrollees who meet work requirements may still lose coverage because they get tripped up by red tape and paperwork.The Administration's guidance allows states to impose work requirements on adult Medicaid enrollees other than those who are 65 or older, pregnant, or qualify for Medicaid because they receive disability benefits through SSI. The first work requirement approved was Kentucky's, which requires enrollees to document that they work or engage in other work activities (e.g., job training or volunteer work) for at least 80 hours per month unless they prove that they qualify for limited exemptions. The Administration has also approved work requirement policies in Indiana and Arkansas, and other state proposals are pending.

Working People with Unstable Jobs Will Lose Coverage

Approved and pending state work requirement policies reflect an assumption that people who want to work can find steady employment with regular work hours — an assumption out of step with the realities of today's low-wage labor market.

 

 

Many Medicaid enrollees work in industries in which both employment and hours are volatile. The two industries that employ the most Medicaid enrollees potentially subject to work requirements are restaurants/food services and construction; many enrollees also work at grocery stores, department stores, and discount stores or provide home health or child care services. These industries generally have above-average rates of involuntary part-time work, where employees want full-time work but can't get it. In the food service and retail industries, large shares of workers report fluctuating weekly hours; these industries also have above-average rates of irregular scheduling, in which employees are expected to be on call and available for much of the week but may receive well under 20 hours of work per week. The low-wage labor market is also characterized by frequent job loss. In the retail and construction industries, for example, job separation rates are well above private-sector averages. While many factors contribute to this high turnover, one is a lack of flexibility: workers may lose their job if an illness, family emergency, or breakdown in child care arrangements forces them to take even a short amount of time off from work.

Overall, a large share of low-wage workers will fail to meet a work requirement like Kentucky's at least some of the time, analysis of 2012-2013 Survey of Income and Program Participation data shows. Among adults age 19 to 64 not receiving federal disability assistance and with incomes that would qualify them for Medicaid, most worked at least some of the year. But among those who were working, 46 percent worked fewer than 80 hours in at least one month, putting them at risk of losing their health coverage under Kentucky's approved (and other states' pending) work requirements. Even among those who worked at least 1,000 hours over the course of the year — or about 80 hours per month, on average — 25 percent would have failed to meet Kentucky's work requirement in at least one month. (See chart.) This means that if all states adopted work requirements similar to Kentucky's, millions of working people could lose coverage or face interruptions in coverage due to unstable employment or volatile work hours.

Other Workers Will Lose Coverage Due to Red Tape

On top of these challenges, some workers who comply with work requirements also will likely lose coverage due to paperwork requirements and other reporting burdens. To prove that they are in compliance, Medicaid enrollees will often have to submit paystubs, timesheets, or other documents, potentially from multiple employers. This will be challenging for enrollees and create many chances for people to lose coverage due to inadvertent paperwork mistakes — theirs, their employer's, or the state's. Meeting reporting requirements may also involve taking time off from work to visit an eligibility office, waiting to get through to a caseworker, or using online portals that aren't readily available to people who lack computers or Internet access.

Moreover, some states plan to impose even more onerous reporting requirements. Arkansas, for example, will require enrollees to report their hours for the previous month by the fifth of each month; workers who miss that deadline will be automatically treated as out of compliance for the month. Such an approach will almost certainly cause some eligible workers to lose coverage.

Loss of Coverage Will Worsen People's Health

Losing coverage worsens health for all groups, which is why physician organizations like the American Medical Association, American Academy of Family Physicians, American Academy of Pediatrics, and others oppose Medicaid work requirements. But coverage losses and interruptions in coverage are especially harmful for people with serious health needs, for whom loss of access to medications and other treatment can lead to serious deterioration in health, increased emergency room visits and hospitalizations, and higher health care costs, research has shown.

Low-income people have above-average rates of chronic conditions and other health challenges.  Even working Medicaid enrollees — who are generally healthier than other enrollees — have high rates of serious health needs. For example, a study of working adults enrolled in Michigan's Medicaid expansion found that more than half had a serious physical health condition such as heart disease, asthma, or diabetes, and 25 percent had a mental health condition, often depression.

Work Requirements Will Make It Harder for People to Keep Working

Among working people who gained coverage through Medicaid expansion in Ohio and Michigan, majorities reported that gaining coverage made them better at their jobs or made it easier for them to keep working. That probably reflects the fact that, for the many Medicaid enrollees with serious health conditions, Medicaid provides access to needed treatments that allow them to control these conditions and maintain employment.

In contrast, Medicaid work requirements are likely to set off a vicious cycle for some working enrollees. One common cause of job loss among low-wage workers is health problems, in part because, as noted, low-wage jobs offer little flexibility (most don't provide sick leave, for example). In states with work requirements, health setbacks resulting in job loss may then lead to loss of coverage and access to treatment, making it far harder for people to regain health and employment. Similarly, loss of coverage due to failure to document enough hours of work may result in deteriorating health, causing job loss.

Thus, while the Administration argues that Medicaid work requirements will improve economic mobility, they are likelier to do the opposite — in addition to reducing coverage, access to care, and financial security and worsening health.

April 11, 2018

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Everyone loses in an all-out trade war, but some of the poorest countries lose the most [feedly]

Everyone loses in an all-out trade war, but some of the poorest countries lose the most
https://www.washingtonpost.com/news/wonk/wp/2018/04/10/everyone-loses-an-all-out-trade-war-but-some-of-the-poorest-countries-lose-the-most/

Residents of Cap-Haïtien wait for Hurricane Irma in September. The storm was one in a series of natural disasters that left Haiti vulnerable to an upheaval in the system of global trade. (Hector Retamal/AFP/Getty Images)

Everyone loses if Donald Trump shifts the focus of his trade war to the World Trade Organization. But a new analysis of global trade in more than 5,000 commodities shows some of the world's poorest countries would suffer most.

In recent days, the president has broadened his anti-China trade tirades to the "unfair" WTO, which he has called "great for China and terrible for the United States." It's unlikely Trump's rhetoric will bring the WTO crashing down, but we can see how a doomsday scenario could unfold.

As international trade referee, the WTO is the main obstacle between the global economy and what international trade economist Peri da Silva and his collaborators estimate would be a crushing 32-percentage-point average jump in global tariff levels.

A rogue actor can undermine the whole system

Last month, Trump used a national-security provision of the U.S. Trade Expansion Act of 1962 to restrict steel and aluminum imports. This month, he used an investigation based on the U.S. Trade Act of 1974 to propose tariffs on $50 billion in goods from China. Days later, he threatened tariffs on an additional $100 billion of Chinese products.

China promised to retaliate in kind, but has typically paid lip service to the WTO dispute-resolution system.

By acting outside the WTO, Trump increases the risk that other economies will do the same, undermining the organization's authority and effectiveness.

A tendency toward tariffs puts the weakest at risk

Without the WTO, da Silva says, countries would use their market power to raise tariffs as high as markets would bear — not unlike corporations setting prices in a competitive market.

This would disrupt intricate global supply chains and force companies to pay more for imported raw materials and other goods. At the same time, international markets would shrink as trade partners throw up retaliatory tariffs. Meanwhile, consumers get less bang for their buck as prices rise in accordance with the tariffs.

The protectionist plague won't hit all countries and industries equally. We know that because da Silva, a professor at Kansas State University, and fellow trade economists Alessandro Nicita of the United Nations Conference on Trade and Development and Marcelo Olarreaga of the University of Geneva created a detailed model of each country's relative market power, based on the characteristics and quantities of the 5,000-plus goods they trade with more than 120 partners.

For a coming paper in the Journal of Political Economy, they calculated the leverage each country had over each commodity, given their partners, circumstances and share of the market. The United States happens to have unusual market power over ceramic building bricks, chicory and certain specialized steel products, while China could flex its muscles over certain tungsten products, silk ties or preserved pineapple.

Haiti, still rebuilding from the 2010 earthquake and 2016's Hurricane Matthew, lacks almost any market power and depends heavily on trade with powerful partners such as the United States. It needs the American market and has little access to alternatives. In a cruel, rational world, it might face tariffs as high as 97 percent. The same goes for other Central American and Caribbean nations, as well as America's NAFTA partners.

The United States is well built for a trade war. It can cause a lot of damage to trade partners should it pursue an aggressive America-first policy. It has the size and economic independence to withstand significant retaliation. But that doesn't mean that trade wars are easy to win — despite what the president says.

"In principle, you could win," da Silva said, "but from our measures you clearly don't have anybody powerful enough."

The European Union ranks above the United States as the most powerful entity in the academics' model, and China combines its market clout with an authoritarian government that gives it the resources to subsidize threatened domestic industries while freeing it from the need to answer to voters.

When each country exploits its full advantage, the United States would face about 30 percent tariffs, the E.U. would face 36 percent and China would face 39.5 percent. That's about a tenfold increase from the current relatively negligible tariffs of around 3 to 4 percent.

Poor and trade-dependent countries such as Sri Lanka, Zimbabwe and Ethiopia would be hit even worse.

These countries have been the beneficiary of the WTO — arguably even more than China — and would suffer most from its failure, facing tariffs of above 50 percent.

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Income Required to Purchase a House [feedly]

Income Required to Purchase a House
http://ritholtz.com/2018/04/income-required-purchase-house/

How Much Income You Need to Afford the Average Home in Every State in 2018 Source: How Much     Yesterday, I discussed how much retail has changed. In particular, I noted how decades of wage stagnation made middle income consumers (and below) especially price sensitive. The results of this: "To me, price sensitivity is…

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The post Income Required to Purchase a House appeared first on The Big Picture.

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Donald Trump trade threats lack credibility [feedly]

Donald Trump trade threats lack credibility
http://larrysummers.com/2018/04/09/donald-trump-trade-threats-lack-credibility/

April 8, 2018

US bluster has caused most of the world to rally to China's side

As the possibility of a trade war between the US and China looms, threats and counter-threats are hurled back and forth and markets gyrate, economic logic and truth appear to be an early casualty. There are certain points of fact on which there should be no disagreement.

First, globalization and trade have caused significant disruption to the US economy but this has had little to do with trade agreements of the last generation. It is now clear that increased imports especially from China have inflicted substantial burdens on manufacturing workers, particularly in the the north central part of the country. Where too much conventional analysis goes wrong is in attributing this to trade agreements and in failing to recognize offsetting job gains from exports.

The reality is that the US economy was largely open by the 1980s and that every major trade agreement has reduced other nations' trade barriers by far more than it altered any American trade barriers. This is most true of China's 2001 accession to the WTO, in which the US only committed to continuing to keep its markets open on the most favorable nation terms that had already been ratified each year for more than a decade but won major changes in Chinese economic policy.

The real reason for economic disruption was not trade agreements but the emergence of emerging markets as major participants in the global economy. This is not something the US could stop or, given its export interests and broader interests in global co-operation, could plausibly aspire to contain.

Second, much of President Trump's rhetoric notwithstanding, it is wrong to say nothing has been achieved through negotiation with China. Only a few years ago, China's current account surplus was the largest relative to GDP among significant countries, it was holding its currency down to maintain demand for its exports, and most software used on its personal computers and videos on sale in its major cities were pirated.

Today China's global surpluses are far below past US negotiating targets of a few years ago, China has spent about $1tn propping up its currency, and IP protections are far better enforced than a few years ago for major US software and video producers. Of course major issues remain but the view that multilateral pressure without bluster is ineffective is belied by experience.

Third, extraction of IP through joint venture requirements is largely a problem for companies outsourcing production from the US and not for American workers. Corporations headquartered in the US often complain bitterly that if they wish to enter the Chinese market they must enter into joint ventures with Chinese counterparts who demand transfer of intellectual property and then operate on their own.

These complaints are often accurate. Notice, however, that they typically involve cases where the company in question produces for China in China and so have little impact on US employment. In many cases a substantial number of the company's shareholders are foreign and it pays taxes to many governments. It is more than a little ironic that an administration that condemns outsourcing should make standing up for those who move production to China so central a priority.

Fourth, bilateral trade bluster is not an effective strategy for the US. While most countries feel somewhat threatened by Chinese trade and business practices, it has been the unfortunate accomplishment of US trade policy in recent months to cause most of the world to rally to China's side because of our disregard for the WTO and the global system.

Not only does having many others on its side make it easier for China to resist the US, it also undercuts the effectiveness of our sanctions. China can still export to other markets and US producers who use Chinese inputs lose competitiveness when only they are forced to pay tariffs. History is clear that moments of high trade truculence like that pursued against Japan in the early 1990s accomplished very little while imposing substantial costs.

Fifth, threats have to be credible to be effective. In recent weeks, every time the US has pushed its strategy markets have had mini-collapses, and every time it has appeared to pull back markets have rallied. How in such a world can it seem credible that the US will actually carry through on its threats? And without credibility why should one expect strong responses from China? I return from a recent meeting with senior Chinese officials with the clear sense that they are more bemused than alarmed by what they see as a boomeranging US approach.

The US can do much better for itself and for the global economy but this is the subject for a subsequent column.

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Recovery Radio:The Healing Forest: Recovery Radio Welcomes Paula Jean Swearengin

John Case has sent you a link to a blog:



Blog: Recovery Radio
Post: The Healing Forest: Recovery Radio Welcomes Paula Jean Swearengin
Link: http://recovery.enlightenradio.org/2018/04/the-healing-forest-recovery-radio.html

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New York State's Big Middle Finger to the Republican Tax Plan [feedly]

New York State's Big Middle Finger to the Republican Tax Plan
http://cepr.net/publications/op-eds-columns/new-york-state-s-big-middle-finger-to-the-republican-tax-plan

Last month New York State gave a big middle finger to Donald Trump and the Republican Congress. It included measures in its budget bill that will allow people in the state to get around the new tax law's limit on the deductibility of state and local taxes. This could save the state's ability to maintain and extend its level of public services.

A provision in the Republican tax overhaul bill limits the amount of state and local taxes (SALT) that could be deducted from federal income tax to $10,000. In a relatively high-tax state like New York, many families have state and local taxes that far exceed this amount. The capping of the SALT deduction is a Republican effort at the federal level to deny states the revenue they would need to maintain and extend current levels of public services. This is why the workarounds designed by Gov. Andrew Cuomo's administration are a big deal.

While the people who will be affected by this cap are mostly higher-income families, its impact would be felt statewide. New York has a relatively progressive income tax, with the highest income families facing an 8.2 percent income tax rate.

While it is a safe bet that people never like to pay taxes, the deduction against federal taxes made the state income tax less costly, especially for high-income people. With a top federal income tax rate of 39.6 percent, the SALT deduction effectively meant that the federal government was reimbursing 40 cents of every dollar that high-income people paid in state and local taxes. This meant that the top New York tax rate of 8.2 percent, was really a tax rate of 5 percent (60.4 percent of 8.2 percent), after factoring in the deduction on federal taxes.    

By limiting the SALT deduction, the Republican tax bill changes this arithmetic. Higher income families will now pay 100 cents on the dollar of any additional taxes imposed by state and local governments. This restriction was explicitly included in the bill to make it more difficult for states like New York to maintain a high level of social services.

Republican congressional lawmakers assumed that limiting the deduction would make high-income people more resistant to any future tax increases and may even cause them to push for tax rollbacks. In a context where progressive change is unlikely to come out of Washington in the foreseeable future, measures like extending health care coverage, affordable child care and free college are most likely to advance at the state level. New York's work around is leading the way for other states that will be penalized by the tax law.

While there are two distinct measures in the state's budget for getting around the SALT limit, the more important measure replaces a portion of the state income tax with an employer-side payroll tax. Under this plan, an employer would pay a 5 percent payroll tax to the government, similar to the employer-side payroll tax they pay now at the state level for workers' compensation and unemployment insurance and at the federal level for Social Security and Medicare.

Economists typically expect that an employer-side payroll tax will come out of wages. They don't care whether they pay wages to the worker or taxes to the government. This means that if an employer paid a 5 percent payroll tax on a worker's $200,000 salary, this amount ($10,000) would come out of the workers' paycheck. Instead of $200,000 a year, this worker would get $190,000 a year.

If you're wondering why a worker would ever want to see their pay cut by $10,000, you have to look more closely. When the worker was being paid $200,000, she had to pay $10,000 in taxes to New York State. Now she is only earning $190,000, but doesn't owe any money in taxes to New York State. This means that her pay, net of state taxes, is exactly the same.

What's more, she is better off now when it comes to federal taxes. Instead of being taxed on $200,000, she will only pay federal taxes on $190,000. Since this person would likely be in the 32 percent bracket, this tax shift would save her $3,200 on her federal taxes. And, as a neat twist, she will get these tax savings even if she doesn't itemize on her federal returns.

While it might have been desirable to make this tax switch mandatory, New York's law is voluntary for employers for political reasons. Several commentators have claimed that few employers are likely to take advantage of this switch because it is too complicated.

A factor suggesting that the switch will be widely adopted is the popularity of Flexible Savings Accounts (FSA). These accounts allow workers to put aside pre-tax dollars to cover medical bills, effectively saving the income and payroll taxes they would otherwise pay on this money.

There is a considerable amount of paperwork involved in documenting expenses for FSAs. Also, money that is not spent at the end of the year is lost. Furthermore, relatively low caps mean the potential savings are limited, typically to a few hundred dollars a year.

Nonetheless, FSAs are very popular. By comparison, the payroll tax shift requires just a one-time adjustment by the employer (like the one they just did for the new tax law). The potential gains are far larger with the employer-side payroll tax; as noted in the example here, the worker could save $3,200 a year on her federal taxes.

For this reason, it is likely that the employer-side payroll tax device will catch on quickly, even though it is not mandatory. It would be great if other liberal states adopted similar workarounds to preserve most of the SALT deduction for their residents.

If that were to be the case, we would get a situation where the only people who lose the benefit of the SALT deduction would be higher-income people living in Republican states. Now that would be a great product of the Republican tax bill.

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