Jobs for the Future: Protecting the Labour Market in the Face of the AI Revolution [feedly]

Jobs for the Future: Protecting the Labour Market in the Face of the AI Revolution
https://www.globalpolicyjournal.com/blog/13/02/2019/jobs-future-protecting-labour-market-face-ai-revolution

Technological progress, particularly the development of artificial intelligence (AI), has the potential to drastically change our societies and our labour markets. Whilst AI could make a large proportion of jobs redundant, it also offers opportunities to reshape labour markets and improve the ways in which we work. However, we still know very little about the impact AI will actually have on labour markets – predictions in the academic literature vary wildly, with some claiming that 47% of US jobs are at risk of automation (1), while other work arrives at a prediction of a comparatively small 9% (2).

This is why our research set out to review the literature on labour market effects of automation and AI, critically evaluating the assumptions behind it and the paradigms that shape different predictions. We found that while much of the literature uses highly rigorous methods to estimate the labour market impact of AI, authors end up with drastically different conclusions because there are simply many things we do not yet know about how automation will affect labour markets. These include how the process of automation will proceed in countries with different labour market structures, how long it will take for AI to overcome certain "bottlenecks" such as social intelligence and creativity, and whether AI will be able to replace some occupations entirely, or merely certain tasks within occupations. Moreover, a holistic assessment should estimate not only rates of job replacement, but also the potential for job creation in new sectors and occupations made possible by technological progress, further complicating matters.

While we conclude that cautious estimates may overall be more appropriate, there is no denying that AI has the potential to fundamentally transform our labour markets, and a number of valuable conclusions can be drawn from the literature. AI could disrupt labour markets significantly, and the burden of adjustment will fall mainly on workers in low-skilled, low-wage jobs that will be most easily replaced by technology. Yet the focus on job destruction should not stop us from recognizing the possibility of job creation through new technologies, and it is imperative for policymakers to harness this potential. Finally, a focus on the employment impact of AI as a "numbers game" is too narrow – technology will have large consequences for the ways in which we work, and if the challenges it poses are met, could inject greater flexibility and opportunity into labour markets.

Focusing on the UK policy context, we argue that so far AI has been largely seen as an investment opportunity, with comparatively little attention paid to its potentially disruptive socioeconomic impact. Drawing on international examples, our white paper identifies a number of policy recommendations to address the challenges posed by automation, focusing on labour market and education policy:

1) Assigning Responsibility: Dealing with AI requires coordinated government action across a range of different departments affected, necessitating the establishment of an "AI Tsar" who can draw together different government bodies for an effective and coordinated response.

2) Education and Training: While the UK government has identified investment in STEM education as a priority, more can be done to encourage take-up of STEM subjects among pupils, such as closer embedding of career advice in schools. Moreover, more investment is needed to address the inequitable socio-economic take-up of STEM education. Crucially, however, an exclusive focus on STEM education neglects the fact that collaborative and creative skills remain one of the fields in which humans are expected to retain a comparative advantage over technology in the medium term, necessitating a focus on take-up of these types of skills. We recommend a variety of measures, including the bridging of gaps between the arts and sciences in schools, and raising the profile of caring work as a career through improving its economic and social status.

3) Job Quality: The disruption to labour markets caused by technological progress raises concerns over job quality, and it is imperative that the government smooth increasingly frequent transitions between jobs and rethink a social security system built on the assumption of continuous careers over people's working lives. This necessitates revisiting the incentive structures linked to unemployment support and anticipating effects of longer transitions on pensions and savings, as well as a particular focus on raising job quality in growth sectors such as care work. Moreover, we recommend wider consultation on and greater employee engagement in the improvement of working conditions.

4) Skills and Retraining: The government needs to take action to ensure that workers can update their skills throughout their working lives. Measures that can be taken to make this possible include greater investment in lifelong learning, creating incentives for employers and private contractors to run training programmes, ensuring that necessary infrastructure such as broadband coverage is in place to smooth the transition, and increasing the focus of sanctioning systems on matching people to long term employment.

5) Sharing the Gains Fairly: While the measures outlined can mitigate the potential negative socio-economic consequences of automation, low-skilled and low-waged workers remain most likely to suffer during the transition. Several measures to ease this burden could be explored such as a "robot tax" or, through small-scale trials, a universal basic income. 

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The irrelevant Independent Group [feedly]

My reaction to this is to find Ben Friedman's The Moral Consequences of Economic Growth ASAP and read it. Based on this report (in the context of the UK/EU Brexit Crisis) it confirms a key feature of Karl Marx's philosophical approach to economics. Namely, that objective is primary to subjective, that the development of capitalism -- the circulation of commodities and capital -- is AN OBJECTIVE  FORCE, not unlike the wind, or the flow of a river. Why is this of interest? (I am not appealing to Marx as an 'authority'). However, when a billionaire chooses a billion $$ investment path that creates serious harm to others, is it the evil character of the billionaire that is responsible, or is it the force of the billion in capital (which is born in commercial growth and reproduces itself via growth) that wants profitable deployment and accepts no excuses?   Is it bad billionaires--the subjective interpretation, or is capitalism failing? And if the latter, how serious a failure? (Feudalism "failed" for a thousand years, and it still hasn't completely disappeared-- there remain 26 monarchies. 

The data is showing that the latter philosophical stance is a more serious guide to the connections between progress toward a progressive society and the boundaries imposed by capitalism in its current development..

An ancient Vietnamese proverb via Ho Chi Minh, and Jackson Browne, may encapsulate the answer: THE HAMMER SHAPES THE HAND.

The irrelevant Independent Group
https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2019/02/the-irrelevant-independent-group.html

The Independent Group claims to value an "open, tolerant and respectful democratic society" and to oppose Brexit. It wills the ends, but not the means. It fails to see that Brexit and intolerance are the product of economic conditions, and is silent on what to do about those conditions. It looks therefore like a bunch of narcissists complaining that people are not like them whilst offering no real solutions.

As I've said many times, the key to understanding politics today is Ben Friedman's book, The Moral Consequences of Economic Growth, published in 2005. He shows that economic growth begets liberal attitudes and that stagnation breeds intolerance. Subsequent events vindicate him perfectly. As Thiemo Fetzer has shown, pro-Brexit attitudes are "strongly and causally associated with an individual's or an area's exposure to austerity." In a separate vein, Nick Crafts has blamed Brexit upon the banking crisis.

In this sense, economic stagnation is the cause of Brexit and of the turn away from the liberal values the IG claims to espouse. And this stagnation is still with us. Only today the ONS reported that productivity fell last year: this means it has risen only 0.2% a year since 2007 compared to 2.3% per year in the thirty years before then. Because of this, real wages are still below their pre-crisis peak.

The IG, however, is silent about this. Its statement (pdf) makes no mention of austerity or stagnation. In fact, pretty much its only substantive reference to the economy is to government's "responsibility to ensure the sound stewardship of taxpayer's money", which doesn't inspire hope of a firm rejection of austerity.

It claims that our politics is "broken", but is blind to the fact that capitalism is broken too, and that this is a major cause – perhaps the major cause – of our broken politics. Phil says the IG has "learned nothing, nothing since 2015." I'd question only the year here: it seems it has learned nothing since 2008.

Now, you might reply that it's unreasonable to expect a new political grouping to have detailed policies. True enough. The problem with the IG, though, isn't that it doesn't have solutions: it's that it doesn't even see a problem. There's a good debate to be had about how far capitalist stagnation can be fixed by fiscal and monetary policy alone, and how far it needs institutional change too. The IG shows no sign of entering this debate, though.

At least one of its members has form here. Last year Chris Leslie wrote a paper, Centre Ground (pdf), which also largely ignored the financial crisis. I criticizedhim then for failing to see that the crisis necessitated a rethinking of the relationship between the state and the private sector. He shows no sign of learning this lesson: his claim to believe in "evidence-based" policy-making is a sign of astounding lack of self-awareness.

Herein, for me, lies the great virtue of Corbyn (perhaps his only virtue). He at least sees the problem, that the economy is broken and that the Left needs new policies for new times – just as Blair saw this a generation ago. The IG, by contrast, is stuck in a 1990s timewarp, unaware that the world has changed.

Granted, Corbyn might be right in the same way that a stopped clock is sometimes right. For me, this is unimportant. What matters is that we have something like the right policy ideas for our changed economic times. I can't say how much the IG will affect politics. But I do know that whilst they have no awareness of our economic problem, they will be an intellectual irrelevance.

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Jared Bernstein: Real wage gains and energy prices [feedly]

Real wage gains and energy prices
http://jaredbernsteinblog.com/real-wage-gains-and-energy-prices/

Readers know I'm a huge booster of the impact of low unemployment rates on wage gains, especially for middle and low-wage workers. This dynamic is alive and well in current data and those of us on team Full Employment should elevate and tout it!

But, when it comes to real wage gains in "high frequency data," which have been notable of late–as in, beating productivity growth–it's important to also parse out the role of low energy prices.

The most recent CPI report showed a low topline inflation rate of 1.6 percent over the past 12 months (core CPI inflation rose 2.2 percent). The main factor pushing down on price growth was energy, down 5 percent, with gas prices (a sub-category of energy), down 10 percent.

In my recent write-ups of the jobs and other reports with wage info, I've mentioned the role of low energy prices in real wage growth, but here I'd like to formalize the analysis a bit to try to get a more accurate feel of the importance of this factor.

The first figure below shows recent trends in real hourly wages of mid-level workers (the production, non-sup series from the Establishment survey) deflated by both the topline CPI and CPI less energy. Of course, given volatile energy prices, wages deflated by the sans-energy deflator are smoother and have been gradually climbing since 2015, hitting 1.3 percent last month. The other series hit 1.8 percent, suggesting the difference–0.5 percent–is due to low energy prices.

REAL WAGE GROWTH, YR/YR, DEFLATE BY CPI AND CPI-SANS-ENERGY

Source: BLS

How important is this energy-price effect? Well, a year ago, real wage growth for this series was 0.4 percent, meaning real growth has accelerated by 1.4 percent. But back then, rising energy prices were pushing the other way, i.e., slightly crimping real wage growth. Thus, the change in the energy effect–the difference in difference between the values in the two series above over the past year–is 0.8 percent. That means that 56 percent of the acceleration in real wages over the past year is due to falling energy prices. (See note for details)

That's a sizable impact, but look back at 2015 to see even bigger effects. In Jan, 2015, energy prices were 20 percent below their year-ago level. That month, real wages were up a strong 2.2 percent, and acceleration of 1.5 percent over their year-ago level. The energy price effect more than explains that change.

Such findings do not undercut the longer-term full employment/wage growth connection, as both nominal and real gains are correlated with tighter job markets (I've argued non-linearities are in play but others find that not to be the case). Note, again, the smooth acceleration in real wages since 2015 using the non-energy deflator in the figure above.

But they're also a reminder of the important role of energy prices in near-term, real wage trends. For what it's worth, which isn't a lot, the general consensus is that oil prices, while not expected to fall further, should stay roughly around where they are going forward, as strong global supply meets middling demand. However, there are some noises about OPEC constraining supply, so stay tuned.

Data note: What I'm calling the "energy effect" here is: d_rw_c – d_rw_ne, where the first term is the 12 month log change in the real wage deflated by the top line CPI and the second term is the 12 month log change in the real wage deflated by the CPI less energy. The acceleration calculations first difference d_rw_c and d_rw_ne with their values one year ago and then difference those differences to get the change in the energy effect.

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Piketty: Wealth tax in America [feedly]

Wealth tax in America
http://piketty.blog.lemonde.fr/2019/02/12/wealth-tax-in-america/#xtor=RSS-32280322

Wealth tax in America

What if the final blow for Emmanuel Macron came from the Massachusetts State senator and not from the yellow vests ? Elizabeth Warren, Harvard University law professor, not really an adept of Chavism or urban guerrilla warfare, a declared candidate in the Democratic primaries in 2020, has just made public what will doubtless be one of the key points in the coming campaign, namely the creation for the first time in the United States of a genuine federal progressive wealth tax. Carefully calculated by Emmanuel Saez and Gabriel Zucman, supported by the best constitutionalists, the Warren Proposal sets a rate of 2% on fortunes valued at between 50 million and 1 billion dollars, and 3% above 1 billion. The proposal also provides for an exit tax equal to 40% of total wealth for those who choose to leave the country and to relinquish American citizenship. The tax would apply to all assets, with no exemptions, with dissuasive sanctions for persons and governments who do not transmit appropriate information on assets held abroad.

The debate has only just begun and the schedule proposed could still be extended and made more progressive with rates rising for example to 5% -10% per annum for multibillionaires. What is certain is that the issue of fiscal justice will be central to the presidential campaign in 2020. The representative from New York, Alexandria Ocasio-Cortez has suggested a rate of 70% on the highest incomes, while Bernie Sanders defends a tax rate of 77% on the highest inherited estates. While the Warren proposal is the most innovative, the three approaches are complementary and should be mutually beneficial.

To understand this, let's look back. Between 1880 and 1910, while the concentration of industrial and financial wealth was gaining momentum in the United States, and the country was threatening to become almost as unequal as old Europe, a powerful political movement in favour of an improved distribution in wealth was developing. This led to the creation of a federal tax on income in 1913 and on inheritances in 1916.

Between 1930 and 1980, the rate applied on the highest incomes was on average 81% in the United States, and the rate applied to the highest inherited estates was 74%. Clearly this did not destroy American capitalism, far from it. It made it more egalitarian and more productive, at a time when the United States had not forgotten that it was their level of educational advancement and their investment in training and skills that was the backbone of their prosperity, and not the religion of property and inequality.

Reagan, then Bush and Trump subsequently endeavoured to destroy this heritage. They turned their backs on the egalitarian origins of the country, by counting on historical amnesia and by fuelling identity-based divisions. With the hindsight we have today, it is obvious that the outcome of this policy is disastrous. Between 1980 and 2020, the rise in per capita national income was halved in comparison with the period 1930-1980. What little growth there was, was swept up by the richest, the consequence being a complete stagnation in income for the poorest 50%. There is something obvious about the movement of return to progressive taxation and greater justice which is emerging today and which is long over-due.

The innovation is that it is now a question of creating an annual wealth tax, in addition to the income and inherited estate taxes. This is a crucial innovation in terms of justice and efficiency. Numerous one-shot capital levies have been successfully applied to real estate, professional and financial assets subsequent to the world wars to pay off public debts, in particular in Japan, in Germany, Italy, France and in many European countries. Collected only once, the rates applied to the largest private estates often rose to 40% -50%, or even more. With an annual wealth tax designed to be applied on a permanent basis, the rates are of necessity more restricted. However, they must be high enough to enable genuine mobility of wealth. From this point of view, the tax on inherited wealth comes much too late. We are not going to wait until Bezos or Zuckerberg reach the age of 90 before they begin to pay taxes. With the 3% annual rate proposed by Elizabeth Warren, a static estate worth 100 billion would return to the community in 30 years. This is a good beginning but, given the average rate of progression of the highest financial assets, the aim should undoubtedly be higher (5% – 10% or more).

It is also crucial to allocate all the revenue to the reduction of inequalities. In particular, the American property tax, like the French real estate tax (taxe foncière) weighs heavily on those with limited resources. Those two venerable property taxes which, contrary to what is sometimes stated, tax not only the ownership of housing (independent of any income, which everyone readily admits, at least for the biggest owners), but also tax business assets (offices, plots of land, warehouses, etc.). The problem is that they have never been genuinely re-thought since the 18th century. The time has come for them to become progressive taxes with graduated rates on net assets, with the key element being strong reductions for indebeted households who are seeking to accede to property ownership. Let's hope that the forthcoming American campaign, like the French discussion around the yellow vests, will at last afford the opportunity for an in-depth discussion on the taxation of property and fiscal justice.

PS: on the Warren proposal, see also this paper by E. Saez and G. Zucman, « How would a progressive wealth tax work?« .

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A Rant on Trump, Trade, and China... [feedly]

An excellent rundown from Brad DeLong on the fools running the China trade war. 

DeLong: A Rant on Trump, Trade, and China...
https://www.bradford-delong.com/2019/02/a-rant-on-trump-trade-and-china.html

I'm still trying to come to terms with my Commonwealth Club event with Steve Moore last month. As therapy, I took some of my less-than-coherent ravings and tried to turn then into proper rant:

Steve, what you are saying is simply delusional.

You keep saying that Xi needs to deal because Trump is deadly serious on China and will not back down. Do remember that Trump declared victory on reforming NAFTA, "the worst trade deal in the history of the world", with small adjustments on autoparts rules-of-origin. Small adjustment on auto parts were enough to transform NAFTA, in Trump's mind, from the worst trade deal in the history of the world into something he is now very proud of. Xi has to to be thinking that he should deal with Trump the same way that Mexico did—hang tough, provide a few symbolic concessions only, and Trump will cave and go back to business-as-usual. What is there in the situation that would keep that from being the obvious strategy for Xi?

The United States in the nineteenth century did not pay a cent to Britain for its intellectual property in textiles and steel. Japan industrialized without paying a lot of attention to claims about who owned intellectual property. Now China is doing the same thing—this is what rising powers always do. We did not pay a cent in royalties to Charles Dickens for all of his novels in the nineteenth century. In fact, as late as the 1950s we used a loophole to steal J.R.R. Tolkien's copyright to The Lord of the Rings. We did it to Britain. Japan did it to us. Now China is doing it to us and Japan. This is a source of annoyance. This is a thing to negotiate about. We push, we pull. But that does not change the fact that international trade relationships—whether between Britain and the United States in the 19th century or Japan and America in the mid-20th century or the U.S. and China today—are all enormously valuable win-wins. We are arguing about the division of an enormous surplus from the global division of labor. Letting that argument turn into a trade war that wrecks the joint is hte definition of stupidity.

The Obama administration sought leverage over China with respect to intellectual property issues. It wished take a harder line with China on intellectual property. The Obama administration sought to get as many as possible of China's other trading partners on our side. It formed this organization called the Trans-Pacific Partnership to set up a common negotiating position on what the international trade régime in the Pacific should be. The plan was for the TPP countries to then confront and negotiate with China. And back then you thought this was good—you and Art Laffer wrote a number of pieces about how great the TPP was, and how much leverage it would have—and, indeed, when the bulk of countries from which China might seek to buy from or sell to are on board, you have a lot of leverage. You wrote about how Marco rubio was to be praised because he had been willing to become a decisive Senate vote to grant Obama the power to negotiate the TPP.

Then, lo and behold, suddenly someone convinces trump that the TPP is the second-worst trade deal in American history—"it's almost as bad as NAFTA!"—and you switch sides: all of a sudden you are there on Trish Regan's show claiming the TPP is a horrible deal for America.

Donald Trump... is not a terribly wise person. Jared Kushner finds a guy Peter Navarro who seems to be simply delusional and brings hin into the White House, Robert Lighthizer—who was an effective pro-free trade technocrat back in the Reagan and Bush 41 administrations—as now adopting positions that I can only understand as driven by corruption. Trump, Navarro, and Lighthizer appear to be running this China trade war. And I cannot find a single person in the White House who approves of what they are doing.

Trump was—it appears Trump still is—insisting on bilateral balance with China. That is not going to happen. Balanced trade inevitably requires bilateral surpluses and deficits because for no country in the world is the set of countries it wants to export to identical to the set of countries it needs to import from. Balance is always triangular and more complicate patterns of balance, not bilateral balance. Moreover, low-savings countries run trade deficits. The United States is a low-savings country. And the United States is a country that wants to import from China but sees other countries as more attractive export targets.

Consider how things look from Xi's perspective, sitting there in Beijing. Xi has got to conclude that somebody who truly cared about and was genuinely serious about the intellectual property issues would not have blown up his leverage on day 1 by nuking the TPP. Someone who cared about trade issues at all would not be damanding something—bilateral trade balance—that is never going to happen both because the U.S. is a low-savings country and low-savings countries run trade deficits, and because the way trade would balance would have China running bilateral deficits with its materials suppliers, its materials suppliers running bilateral deficits with us, and our running a bilateral deficit with China.

Xi has got to conclude 's going on, um, that either this is all a big bluff because someone who was genuinely serious about intellectual property would not have thrown away his leverage to start with and would not be demanding something that simply ain't going to happen no matter what balanced bilateral trade, either it's a bluff or this is simply someone who cannot be reasoned with. Um, and so we're going up kind of have to do what other people do. What the mexican government, the mexican government was faced with trump who thought that naft claimed to think proud. Nafta was not the second worst, but the worst trade deal in american history. And lo and behold, change the name of nafta to what is it canadian us mexican free trade agreement or something and have some very minor adjustments. In what counts as domestic auto parts, production adjustments that us auto manufacturers didn't really want them don't really care about, and all of a sudden, instead of being the worst trade deal in american history, naf does something perfectly fine that trump is way competent to happy to sign and is extraordinarily proud of those ge thinks is betting that trump will fold here again as he folded with nafta and ge thinks if trump doesn't fold well, this isn't really a rational agent we're dealing with.

From Xi's perspective, it has to look like he is negotiating with somebody who is (a) bluffing or (b) flunking his Turing Test.

So Xi and his advisors have to conclude that (a) Trump is probably bluffing—as he bluffed on the shutdown, as the bluffed on NAFTA—and that (b) even if Trump is not bluffing, there is no point in offering concessions because the people running policy—Trump, Navarro, Lighthizer—are not wise, are delusional, appear corrupt—and they have no support either inside or outside the White House. So we had better hope this is another Trump bluff.

#publicsphere #orangehairedbaboons #highlighted #globalization

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Crooked timber: Democracy and inequality as a global foreign policy agenda [feedly]

Not many problems can be fixed in  a single country anymore -- Crooked Timber is a social science/philosophy/political science blog with a good number of UK, Australian and US contributors -- mostly social democratic in outlook.

Democracy and inequality as a global foreign policy agenda
http://crookedtimber.org/2019/02/11/democracy-and-inequality-as-a-global-policy-agenda/

[The below text is a short memo I presented for a workshop on a left-liberal financial foreign policy for the US last week.]

The US left is starting to come to grips with the relationship between democracy and inequality. This builds on a variety of academic work over the last several years – most prominently Thomas Piketty's book, but also work by other academics such as Emmanuel Saez and Gabriel Zucman – which maps the growth in wealth and income inequality across rich countries, and how marked it has been in market-liberal countries such as the US. But these are no longer academic debates: they are being taken up by politicians within the Democratic party, creating a new dynamic of intra-party competition. Proposals by left-leaning politicians such as Bernie Sanders and Elizabeth Warren are not only notable in themselves, but in how they are shifting the center of gravity, so that more centrist politicians too are taking them up.

To date, most of the political attention has been on the domestic aspects of income inequality. What discussion of global trends there has been has focused on the fact that global inequality is falling as some developing countries catch up. I identify an alternative set of empirical findings that highlight how global networks shape patterns of inequality in the US and elsewhere. I argue that these findings have crucial implications for how we think (a) of inequality within the US, and (b) for the corrosive impact of inequality on democracy elsewhere. Finally, I suggest that there is an important policy agenda that might take up this work, and use it to start to reshape global structures so as to shore up and promote democracy.

Global structures reinforce domestic inequality

People think of economic inequality mostly as a domestic issue. They shouldn't. Global economic structures play a key role in generating inequality of wealth and influence.

They affect who gets what in the global economy. For example, international rules on intellectual property, laid down in a variety of multilateral and bilateral treaties help ensure the continued dominance of businesses in the US and Europe. ISDS rules notoriously favor the interests of international corporate investors over those of citizens, strengthening the ability of business to extract political concessions. The political left has paid some attention to these problems (although certainly not enough).

They also affect who gets taxed on what they get and who does not. Corporations and the very rich are able to take advantage of a whole industry devoted to crafting tax shelters that are designed to slip between the loopholes of different countries' rules, or exploit the willingness of some countries to harbor dodgy money. Some of this money stems not from tax evaders but from corruption and other forms of crime. Out-and-out tax havens have been criticized by rich powerful states looking to prevent leakage of money from their own jurisdictions. However, this grossly understates the problem. These problems are only beginning to be addressed by the US left.

Academic research is helping to map out the problem

Academic research suggests that the problem goes far beyond a small number of "tax haven" countries. Alex Cooley and Jason Sharman, for example, have carried out extensive research on kleptocratic corruption. They find that the standard picture of a world where there are relatively honest rich countries, and relatively corrupt poor ones, is quite wrong. Corruption and tax evasion is not a problem of bad countries but transnational networks. Different jurisdictions are connected together by the channels of (1) banks, (2) shell companies, (3) foreign real estate, and (4) second citizenship and investor visa programs. Notably, much corrupt activity is conducted by and through respectable banks, lawyers and accountants. In an experiment, Sharman and his colleagues pretended to be money launderers, corrupt officials, and terrorist financiers, and worked with specialist firms to set up shell companies to hide their illicit money. Sharman and his colleagues found that it was much easier to do so with firms based in Wyoming and Delaware than in notorious tax havens such as Panama.

Other scholars are trying to estimate how much money is hidden from authorities. Gabriel Zucman at the University of California in Berkeley has estimated that approximately 8% of global wealth, or US$7.6 trillion, is hidden in offshore arrangements, designed to either avoid or evade taxes.

These networks have stark implications for democracy in developing countries. As Branko Milanovic argues:

[the traditional] view that robber barons may demand the rule of law and the protection of property rights once they have acquired property seems reasonable—so long as we assume that there is no globalization. But with globalization, it is not necessary to fight for the rule of law in one's own country. …  A much easier course of action is to take all the money and run away to London or New York, where the rule of law already exists and where nobody will ask where the money came from. A number of plutocrats from Russia, and increasingly from China, are taking this route.

 

They have substantial, albeit less immediately dire implications for democracy in advanced industrialized countries, where they reinforce domestic financial and institutional arrangements that make it increasingly hard to trace money. Again, they make it easier for wealthy individuals in these countries to hide money from taxation authorities, weakening the state. In more recent estimates, Zucman and his colleagues find that a significant percentage of US GDP is held offshore (although far less than for some other countries; over 70% of the UAE's GDP is held offshore). These estimates are at best rough, building as they do on known patterns of wealth holding and extrapolating from them. The fact that offshore wealth is so difficult to measure is a substantial part of the problem.

Such networks can have other negative consequences for democracy. Unexplained international money flows played a substantial role, for example, in supporting the "Leave" vote in Brexit. There is good reason to suspect that they play a significant role in the politics of other industrialized countries. There is much speculation about the role of Vladimir Putin and Russia in financing these flows: such speculation may or may not be correct, but is almost beside the point. The obscuring networks and structures that enable political manipulation are open to a wide variety of domestic and international actors, allowing oligarchic forces to exercise substantial political influence with little or no political accountability.

This research has strategic implications for the left

The scholarship on global wealth flows and illicit financial networks is highly imperfect. It shows that there is a problem, that it is a big one, and sketches some of its contours. That is all it can do, given limitations of available data. It has clear strategic implications nonetheless.

First, and most obviously, it indicates that the problem of US wealth inequality is an international as well as a domestic one. If the left increases taxes on personal income, investment income or wealth in the US, it will surely lead to much greater efforts by those affected to minimize their tax burden. The existence of global networks – and of institutional arrangements in the US that greatly facilitate these networks, such as shell corporations – will help them do this. Therefore, reforming international networks is an urgent domestic challenge.

Second, such networks have wide implications for global democracy outside the US too. Before the Trump administration, the US made great noises about its commitment to spreading democracy. However, the US 'liberal order' also involved the massive expansion of global financial arrangements that have very plausibly undermined democracy and the rule of law in developing countries (by allowing political elites to expatriate their wealth to jurisdictions where they can enjoy security, rather than developing such institutions in their own home countries). In short, elements of this order were mutually contradictory – extensive global financial exchange aided oligarchs to stash money overseas, undermining their commitment to the rule of law.  A new left that is genuinely committed to supporting and spreading democracy worldwide must necessarily also be committed to the root and branch reform of the international financial system that the US has done so much to support.

Third – the left has options – especially in the US and Europe. The US has developed a very extensive set of tools intended to gather information from global economic networks and to use them to prevent actors from engaging in various forms of behavior that the US disapproves of. There is no reason in principle that such tools cannot be employed e.g. to gather information on global tax evasion and to punish financial actors that engage in it. Such tools have been used in limited ways to prevent US tax evasion (e.g. by punishing Swiss banks), but could be employed at scale in pursuit of a broader agenda of shoring up democracy. As Nicholas Mulder notes in a recent article for The Nation, there are enormous problems associated with economics sanctions. However, as he also says, the world would be quite different if the US went after international tax cheats with even a little of the fervor it has dedicated to pursuing businesses selling microchips to Iran. At a minimum, stronger data gathering could provide a much better sense of the extent of the problem – and its particular characteristics than is currently available, allowing better crafted policy measures. More ambitiously, they could be the seeds of a different and more politically robust international financial architecture. Obviously, such powers could be overused, provoking their own counter-reactions – they should be viewed as the building blocks of a different international order, based unlike the current one on liberal democracy rather than free market liberalism.

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Chris Dillow: Obstacles to full employment [feedly]

Short answer: capitalism. However, using the current macro economic dialog between Monetarists and Keynesians in the context of the UK Brexit debate and its side-effects, Chris Dillow asks some probing questions about the historical efforts to stabilize what may be inherently impossible to stabilize. Nonetheless it IS possible to constrain the domains of market relations by the adoption of industrial policies and the expansion of free or nearly free goods and services widely used or needed. Buddhist version: For some people, or peoples in some eras, from birth you must ride the tiger, and you must stay on his back until he collapses from exhaustion. If you fall, or leap off, the tiger will kill you.

Obstacles to full employment
https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2019/02/obstacles-to-full-employment.html

Is full employment sustainable? For me, this is one question posed by the row between Richard Murphy and Jonathan Portes and Simon Wren-Lewis over Labour's proposed fiscal rule.

Richard describes the difference between them thus:

I am seeking a stable, sustainable economy with full employment. They are seeking the restoration of the model of central bank monetarism that existed from 1999 to 2008 in the UK, with well-known consequences.

This is because Portes and Wren-Lewis want to use fiscal policy to inflate the economy away from the zero lower bound, so that interest rates can again be used for macroeconomic stabilization.

Richard's desire, however, runs into a problem. Economists generally agree that at some point high employment will trigger rising inflation. What this point is is an empirical question. The fact that inflation has been quite stable since the early 90s whilst unemployment has not been makes me suspect it might be further off than the Bank of England thinks, but that's by-the-by. Which poses the question: what should we do to curb this inflation?

The conventional view, which Simon and Jonathan take, is to raise interest rates. But Richard and MMTers are right to say this isn't the only possibility; in theory tax rises are also an option, as could be public spending cuts or reverse QE. For me, this too is an empirical matter: my weak prior is to favour interest rates to some extent.

All of these policies, however, control inflation by depressing aggregate demand thereby tending to raise unemployment.   

MMTers rightly say inflation is a constraint upon government borrowing. But it is also a constraint upon full employment.  

Now, you could reject this by appealing to the idea of wage-led (pdf) growth (pdf). The prospect of continued full employment - and the wage rises and high demand it would bring with it  - might encourage firms to expand capacity and invest in raising productivity. That would help hold down inflation.

We know that this has worked in the past: it did so in the 50s and 60s.

I fear, though, that it might not be so successful this time. In the 50s there was a backlog of potential investments and innovations for firms to exploit. That facilitated high capital spending and rapid productivity gains. It's not clear we have such a backlog today.

We also know that wage-led growth ultimately failed in the 70s. There are two particular dangers here. We can call them the Minskyan and the Kaleckian.

The Minskyan one is that stability eventually begets instability. Confidence that demand will stay high could incentivize companies to over-invest thus reducing profits; or encourage banks to make ever-riskier loans; or cause share prices to rise too high. We saw all of these in the early 70s. I don't know if Richard is right to say that higher interest rates will trigger another credit crisis. But I do suspect that he underplays the extent to which capitalism can generate crises even without significantly higher interest rates.

The Kaleckian danger is that:

Under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension.

As we saw in the 70s, this can lead to lower investment and hence weaker aggregate demand and rising unemployment. I suspect this will be a problem for any government seeking full employment: capitalists have got used to decades of unemployment and so would regard its absence as weird, and this alone could depress animal spirits.

There are, therefore, big obstacles to lasting full employment within a capitalist economy: a job guarantee, as I understand it, highlights these obstacles more than it overcomes them.

For me, this is why many debates about macroeconomics leave me a little cold. They miss the point that there might be severe limits, within a capitalist economy, to how much even the best policies can achieve.

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