The DeFazio Bill: Reducing the Financial Industry’s Tax on Retirement Savings [feedly]

The DeFazio Bill: Reducing the Financial Industry's Tax on Retirement Savings
http://feedproxy.google.com/~r/beat_the_press/~3/h8hHumfQ4TQ/

Representative Peter DeFazio, along with seven House co-sponsors, introduced the "Wall Street Tax Act" today. This bill would impose a tax of 0.1 percent of sales of stocks, bonds, options, and other derivatives. According to the Congressional Budget Office, it would raise almost $800 billion over the course of the next decade. This would be more than enough to cover the entire food stamp budget over this period. It would be almost enough to fully replace the annual research spending of the pharmaceutical industry, which would mean that all new drugs could be sold as cheap generics from the day they approved by the Food and Drug Administration. In short, this is real money.

The financial industry is already screaming bloody murder over this bill for an obvious reason – it comes out of their hide. The financial industry has been ripping off retirement savers for decades with exorbitant fees and excessive trading. It's not uncommon for an insurance company or brokerage house to charge people 1.0 percent a year or more for the privilege of letting them host your 401(k) or IRA. Just to be clear, this is simply what they charge for hosting the account. They charge additional fees for the various funds (e.g. stock or bond index or value fund) in which people actually invest their money.

This means that a person with $100,000 in a 401(k) may be paying $1,000 a year to an insurance company or a brokerage house, for essentially nothing. Then we add in the fees for the individual funds. If they actively trade your account, these can easily run to another 1.0 percent annually, and often considerably more. It would not be uncommon for someone to be handing the financial industry 2.0 percent of their 401(k) every year, or $2,000 for this person with $100,000 in their account.

The DeFazio bill will take a bite out of the industry's take. The story is a simple one. It will make it more costly to trade financial assets. The industry will be hyping the additional trading cost as the end of the world.

Some simple arithmetic shows that the additional costs are not much for retirement savers to get excited over. Suppose our investor with $100,000 in their account trades 25 percent each year. This would be $25,000 in trades. The DeFazio bill would tax these trades at a rate of 0.1 percent. That comes to $25 a year, assuming the industry fully passes on the tax to investors. That doesn't sound too devastating and in fact is trivial compared to the $1,000 to $2,000 that the financial industry might be pocketing off this person's account.

But wait, it gets better. When the cost of trading goes up, people do less trading – sort of like when the price of apples go up we expect people to buy fewer apples. Most research indicates the decline in the volume of trading will be roughly proportional to the percentage increase in the cost. This means, for example, if the DeFazio bill raises the cost of trading by 30 percent, then the amount an account is traded will be reduced by roughly 30 percent.[1]

If each trade costs the account holder 30 percent more, but they reduce their trading by 30 percent, then the total cost of trading will be essentially unchanged. That means the $25 cost to this investor that we just calculated is actually close to the zero. The $25 comes out of the pockets of the financial industry, since it will be collecting less money in fees and commissions on trading. And now you understand why they hate the DeFazio bill.

There is a part of this story that always leaves people uneasy. If accounts are trading less, then won't investors be earning less money? The answer to this is no.

Every trade has a winner and a loser. If I was lucky enough to sell shares of stock before the price fell, then I ended up ahead on the deal. But there was some sucker who had the misfortune to have bought the stock just before the price drop. On average, we end up winners half the time and losers half the time, so no, on average we don't gain from trading and we won't suffer from less trading.[2] (Yes, there are some very astute fund managers that consistently beat the market, you don't have one.)  

The financial industry doesn't like it when people point out that investors don't make money from trading, since it makes it clear what the real tax on retirement savings is – the industry's fees. But that is the reality, and DeFazio is proposing a bill that will substantially reduce the size of the financial industry's tax on our savings.

And, we can use this money for important public purposes, like providing child care or combatting global warming. This is a tax we need.

[1] I realize most people are not directly trading their account. This means that fund managers will reduce the amount they trade by roughly 30 percent.

[2] There is of course a value to being able to trade stocks, bonds and other financial assets, so there would be a problem if trading fell to zero or something close to it. But we don't have to worry about that story. Trading volume today is more than twice what it was in the 1990s, when almost everyone would agree we had very robust capital markets. This means that even if we saw sharp declines in volume we need not be concerned about being able to cash out of our 401(k) when we retired, or if we needed the money for an emergency.

The post The DeFazio Bill: Reducing the Financial Industry's Tax on Retirement Savings appeared first on Center for Economic and Policy Research.

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Equitable Growth: U.S. retail sector’s recession experiences highlight continuing labor market travails [feedly]

U.S. retail sector's recession experiences highlight continuing labor market travails
https://equitablegrowth.org/u-s-retail-sectors-recession-experiences-highlight-continuing-labor-market-travails/

The coronavirus pandemic and the ensuing economic recession has changed the structure of the U.S. labor market. Public health measures require limiting in-person services, and as a result, many industries saw sharp declines in employment in the springtime. Some industries, such as leisure and hospitality, then experienced a second downturn as the pandemic surged in the winter. Other industries that faced structural changes over the long term have seen some of those processes sped up.

In this column, we examine how the retail industry has been affected by the coronavirus recession, how this has been influenced by preexisting trends in the industry, and what this means for worker well-being of those employed across different types of retail jobs.

The latest Employment Situation Summary, released on January 8 by the Bureau of Labor Statistics, also known as the Jobs Report, shows that between mid-November and mid-December of 2020, the U.S. economy lost 140,000 nonfarm payroll jobs. Among the major U.S. industries, employment declines were especially large for the leisure and hospitality sector, which lost nearly half a million jobs. Government lost 20,000 jobs, making December the fourth consecutive month in which public-sector employment declined. But other industries saw important gains. The professional and business services and retail trade sectors added 161,000 and 121,000 jobs, respectively. (See Figure 1.)

Figure 1

Despite these gains, in December 2020, the retail sector employed 410,000 fewer workers than in February of that year. Moreover, the coronavirus recession hit some parts of the industry much harder than others. For instance, the number of jobs in sports, hobby, book, and music stores shrunk more than 17 percent between February 2020 and December 2020. Almost 1 in 4 clothing store jobs have been lost since the onset of the crisis. At the same time, garden supply stores, nonstore retailers, and general merchandise stores—which include warehouse clubs and supercenters—have actually grown amid the economic downturn. (See Figure 2.)

 Figure 2

This uneven effect on retail reflects two important features of the coronavirus recession. First, because the measures needed to contain the dual economic and health crises affected both demand for goods and services and the operations of many retailers, workers employed in nonessential businesses and holding jobs that require face-to-face interactions have generally been more exposed to layoffs. For the frontline retail workers who kept their jobs, going to work became much riskier. 

Second, and as with other economic trends, the downturn could be accelerating dynamics that were reshaping the retail sector well before the onset of the recession. Over the past decade, the sector's somewhat sluggish recovery from the Great Recession of 2007–2009 was marked by the growth of e-commerce and bankruptcies of well-known apparel and department stores that  media reports called a "retail apocalypse." Even though there is evidence that the degree to which the industry is declining is overstated, retail employment fell somewhat since reaching its peak in early 2017, and is not projected to grow in the next decade.

Additionally, the same parts of the industry that are being hardest hit by the current downturn—clothing, sporting goods, and personal care stores, for example—have shrunk relative to the size of the retail sector since at least 2007. (See Figure 3.)

Figure 3

What does this mean for U.S. retail workers? In the immediate term, continued job losses in the retail sector are hurting some of the most vulnerable workers in the U.S. economy. For instance, 2019 research shows that retail salespersons—a position in which women workers, Black workers, and Latinx workers make up a disproportionately large share of the workforce—represent more than 8 percent of all low-wage U.S. workers, a significantly higher share than any other single occupation. More broadly, the sector pays the second-lowest average wages of any major U.S. industry. Only a small fraction of workers has access to employer-provided benefits. In addition to poor compensation, features of bad-quality jobs, such as unpredictable schedules and high rates of turnover, are rife across the retail industry. 

As for longer-term implications, research from the Urban Institute finds that retail jobs are often the first rung in workers' career ladders, making good jobs in retail an important piece of career advancement and influencing lifetime earnings growth. And while many workers transition out of the retail sector when switching jobs, workers of color in general and Black women in particular are less likely than their White counterparts to exit service and retail occupations. As such, policymakers should prioritize measures that improve labor standards amid the cyclical downward pressures on job quality. 

One way to do this is to raise the wage floor. Even though more than one-fifth of retail jobs earn the minimum wage, nearly 30 states increased minimum wages at the beginning of this month. Maintaining minimum wage increases is a critical part of boosting wage growth in the eventual economic recovery. Research from Kevin Rinz and John Voorheis of the U.S. Census Bureau estimates that some of the worst earning losses of the Great Recession would have been partially offset if the federal minimum wage was increased at the magnitude of the increase in Seattle between 2013 and 2016.

In addition to maintaining and increasing job standards, the overall decline in job growth in December and the persistent decline of employment in retail through the coronavirus recession points to the continued need for direct relief to these hard-hit workers. Unemployment insurance systems need to be shored up and more generous unemployment benefits and direct stimulus payments need to be expanded. Research by Ammar Farooq of Uber Technologies Inc. and Adriana Kugler and Umberto Muratori of Georgetown University shows that Unemployment Insurance benefits improve job quality as workers have the time and financial security they need to move into employment opportunities that better match their skills and interests.

Protecting the economic well-being of workers on the bottom rungs of the wages ladder would power a more robust U.S. economic recovery and improve the resiliency of workers in the long-run so that future economic growth would be more broadly shared.

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Re: [socialist-econ] Angus Deaton: American Capitalism’s Poor Prognosis

I agree. It is almost hard to read here and in the book that his solution is just a less toxic dose of the poison (capitalism). At least push for (Nordic) social democracy.  

On Jan 13, 2021, at 10:21 AM, Samuel Webb <swebb1945@gmail.com> wrote:

too pessimistic and his solutions here as well as in his and Case's book leave a lot to be desired. sam 

On Wed, Jan 13, 2021 at 7:46 AM John Case <jcase4218@gmail.com> wrote:

One of the great modern economists who focused on poverty and the negative trends in capitalism. Recently, with Anne Case (no relation, AFAIK), author of Deaths of Despair

American Capitalism's Poor Prognosis

Jan 13, 2021ANGUS DEATON

The COVID-19 pandemic has both exposed and accelerated long-term trends that will render the US economy system even more unequal and dysfunctional than it already was. Worse, the Democrats' failure to secure a decisive victory in Congress has dimmed the prospects for badly needed reforms.

PRINCETON – Those who advocate taxing the rich to give to the poor often must endure wearied explanations of why such redistribution is a pointless policy. While the rich are indeed rich, there are supposedly too few of them to tax on a scale that would help the poor.



3Add to Bookmarks

PreviousNext

Rarely does one hear about the opposite process – the upward redistribution whereby a few cents taken from everyone make a few individuals very rich indeed. Yet that is precisely what monopolists and rent seekers do, by overcharging consumers, underpaying taxes, and funding politicians who will protect the process of extraction from the many to benefit the few. Worse, the 2020 US election all but ensures that this "trickle-up" dynamic will continue.

The stock market's buoyancy during the COVID-19 pandemic has been the subject of much wonder. Obviously, with interest rates near zero, investors have few other places to find a positive return; and it is perfectly understandable that the market would celebrate good news like Pfizer's announcement that its vaccine candidate may be more than 90% effective.

The problem, of course, is that the stock market does not account for all future national income; it is concerned solely with the part that goes to profits. At any level of national income, the stock market will do better when profits rise or, by the same token, when the share accruing to labor falls. Since the 1970s, the share of wages in US national income has been shrinking. And since the onset of the pandemic, large tech firms have been doing exceptionally well, while many smaller firms have suffered or closed. Tellingly, on a day when vaccine euphoria drove up the Dow Jones Industrial Average by nearly 3%, the tech-heavy NASDAQ actually fell by 1.5%.

This perverse dynamic makes sense when one considers how the pandemic has accelerated the long-term shift in national income away from labor and toward capital. Not only are workers' jobs vanishing and becoming less secure, but small businesses are increasingly losing out to large businesses that employ few workers relative to their revenue. These developments in turn lift the market, which rewards those who have stock portfolios and defined-contribution pensions, while workers in retail, hospitality, and entertainment are left out in the cold.

If the Democratic Party had won a strong majority in the Senate in addition to winning the White House and holding on to the House of Representatives, there might have been a chance to reverse these trends through legislative action. The US health-care system's plundering of American households might have been checked by the introduction of a public option for health insurance, even if more radical alternatives (like "Medicare for All") remained out of reach. It might have been possible to replace or supplement employer-based health care – which is financed by what is effectively a poll tax on workers – with a system funded through general tax revenue.



Moreover, had the Democrats performed better, it would have been possible to pursue meaningful antitrust action against the Big Tech firms. There would have been at least some chance of passing climate legislation. And the long march of anti-union laws might have been slowed or even reversed. But now, the few congressional Republicans who were willing to congratulate Biden on his victory, and even some centrist Democrats, will oppose "socialist" measures like the Green New Deal or health-care reform.

Moreover, the courts will continue to advance the pro-business agenda. There has understandably been much attention lately on the issue of abortion. But it is worth remembering that the Supreme Court also heads a legal system that tends to adjudicate in favor of economic efficiency, with little or no concern for distribution.

Economists bear a good deal of responsibility for this. In the first half of the twentieth century, the failure of capitalism in the Great Depression allowed for the triumph of Keynesianism, with its role for the state. But that was soon followed by a counterrevolution that began with Friedrich von Hayek just before World War II, and culminated with Milton Friedman and his colleagues arguing – correctly enough – that the state, too, has problems. While George Stigler taught us about regulatory capture, James Buchanan showed that politicians cannot always be expected to act in the public interest, and Ronald Coase demonstrated that externalities can be ameliorated without resorting to state action.

Less convincingly, Friedman insisted that inequality is not a problem, and argued against efficient taxation – whether through pay-as-you-go collection, the inheritance tax, or closing down tax havens. The jurist Richard Posner, meanwhile, played a key role in bringing these ideas to the judiciary. Arguing that justice requires society to maximize its total wealth, he advocated favoring producers over consumers, and the wealthy over the needy. Inequality came to be seen not only as unproblematic, but as the hallmark of a just society.

Make your inbox smarter.SELECT NEWSLETTERS

This conception of justice would be recognized as preposterous were it not so regularly applied by US courts. After reaping the spoiled harvest of these ideas for so long, it is time to reconsider – not by rejecting all of the insights of the post-Keynesian counterrevolution, but by building on and beyond them.

Returning to a more innovative and competitive form of capitalism requires that we reverse the demonization of the state. We currently have a system in which the few prosper at the expense of the many. For two-thirds of Americans without a bachelor's degree, life expectancy is falling, not least because pharmaceutical companies have been given a license (by paying off Congress) to addict and kill people for profit. Some of the world's largest – and previously admired – corporations routinely avoid paying taxes, reneging on their obligations to the social, economic, and state institutions that nurtured them, and without which they could not exist.

President Donald Trump's departure will diminish the crony capitalism and plundering of the public purse by his family and friends. But it will not fix a broken system. American capitalism's potential to foster innovation and well-being remains unlimited, but currently its flaws are literally draining the life from many Americans. The rent seekers are, and will likely remain, far too powerful for the country's good.

ANGUS DEATON

Writing for PS since 2015
14 Commentaries

Angus Deaton, the 2015 Nobel laureate in economics, is Professor Emeritus of Economics and International Affairs at the Princeton School of Public and International Affairs and Presidential Professor of Economics at the University of Southern California. He is the co-author of Deaths of Despair and the Future of Capitalism (Princeton University Press, 2020).

--

John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

Facebook

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Re: [socialist-econ] Angus Deaton: American Capitalism’s Poor Prognosis

too pessimistic and his solutions here as well as in his and Case's book leave a lot to be desired. sam 

On Wed, Jan 13, 2021 at 7:46 AM John Case <jcase4218@gmail.com> wrote:

One of the great modern economists who focused on poverty and the negative trends in capitalism. Recently, with Anne Case (no relation, AFAIK), author of Deaths of Despair

American Capitalism's Poor Prognosis

Jan 13, 2021ANGUS DEATON

The COVID-19 pandemic has both exposed and accelerated long-term trends that will render the US economy system even more unequal and dysfunctional than it already was. Worse, the Democrats' failure to secure a decisive victory in Congress has dimmed the prospects for badly needed reforms.

PRINCETON – Those who advocate taxing the rich to give to the poor often must endure wearied explanations of why such redistribution is a pointless policy. While the rich are indeed rich, there are supposedly too few of them to tax on a scale that would help the poor.



3Add to Bookmarks

PreviousNext

Rarely does one hear about the opposite process – the upward redistribution whereby a few cents taken from everyone make a few individuals very rich indeed. Yet that is precisely what monopolists and rent seekers do, by overcharging consumers, underpaying taxes, and funding politicians who will protect the process of extraction from the many to benefit the few. Worse, the 2020 US election all but ensures that this "trickle-up" dynamic will continue.

The stock market's buoyancy during the COVID-19 pandemic has been the subject of much wonder. Obviously, with interest rates near zero, investors have few other places to find a positive return; and it is perfectly understandable that the market would celebrate good news like Pfizer's announcement that its vaccine candidate may be more than 90% effective.

The problem, of course, is that the stock market does not account for all future national income; it is concerned solely with the part that goes to profits. At any level of national income, the stock market will do better when profits rise or, by the same token, when the share accruing to labor falls. Since the 1970s, the share of wages in US national income has been shrinking. And since the onset of the pandemic, large tech firms have been doing exceptionally well, while many smaller firms have suffered or closed. Tellingly, on a day when vaccine euphoria drove up the Dow Jones Industrial Average by nearly 3%, the tech-heavy NASDAQ actually fell by 1.5%.

This perverse dynamic makes sense when one considers how the pandemic has accelerated the long-term shift in national income away from labor and toward capital. Not only are workers' jobs vanishing and becoming less secure, but small businesses are increasingly losing out to large businesses that employ few workers relative to their revenue. These developments in turn lift the market, which rewards those who have stock portfolios and defined-contribution pensions, while workers in retail, hospitality, and entertainment are left out in the cold.

If the Democratic Party had won a strong majority in the Senate in addition to winning the White House and holding on to the House of Representatives, there might have been a chance to reverse these trends through legislative action. The US health-care system's plundering of American households might have been checked by the introduction of a public option for health insurance, even if more radical alternatives (like "Medicare for All") remained out of reach. It might have been possible to replace or supplement employer-based health care – which is financed by what is effectively a poll tax on workers – with a system funded through general tax revenue.



Moreover, had the Democrats performed better, it would have been possible to pursue meaningful antitrust action against the Big Tech firms. There would have been at least some chance of passing climate legislation. And the long march of anti-union laws might have been slowed or even reversed. But now, the few congressional Republicans who were willing to congratulate Biden on his victory, and even some centrist Democrats, will oppose "socialist" measures like the Green New Deal or health-care reform.

Moreover, the courts will continue to advance the pro-business agenda. There has understandably been much attention lately on the issue of abortion. But it is worth remembering that the Supreme Court also heads a legal system that tends to adjudicate in favor of economic efficiency, with little or no concern for distribution.

Economists bear a good deal of responsibility for this. In the first half of the twentieth century, the failure of capitalism in the Great Depression allowed for the triumph of Keynesianism, with its role for the state. But that was soon followed by a counterrevolution that began with Friedrich von Hayek just before World War II, and culminated with Milton Friedman and his colleagues arguing – correctly enough – that the state, too, has problems. While George Stigler taught us about regulatory capture, James Buchanan showed that politicians cannot always be expected to act in the public interest, and Ronald Coase demonstrated that externalities can be ameliorated without resorting to state action.

Less convincingly, Friedman insisted that inequality is not a problem, and argued against efficient taxation – whether through pay-as-you-go collection, the inheritance tax, or closing down tax havens. The jurist Richard Posner, meanwhile, played a key role in bringing these ideas to the judiciary. Arguing that justice requires society to maximize its total wealth, he advocated favoring producers over consumers, and the wealthy over the needy. Inequality came to be seen not only as unproblematic, but as the hallmark of a just society.

Make your inbox smarter.SELECT NEWSLETTERS

This conception of justice would be recognized as preposterous were it not so regularly applied by US courts. After reaping the spoiled harvest of these ideas for so long, it is time to reconsider – not by rejecting all of the insights of the post-Keynesian counterrevolution, but by building on and beyond them.

Returning to a more innovative and competitive form of capitalism requires that we reverse the demonization of the state. We currently have a system in which the few prosper at the expense of the many. For two-thirds of Americans without a bachelor's degree, life expectancy is falling, not least because pharmaceutical companies have been given a license (by paying off Congress) to addict and kill people for profit. Some of the world's largest – and previously admired – corporations routinely avoid paying taxes, reneging on their obligations to the social, economic, and state institutions that nurtured them, and without which they could not exist.

President Donald Trump's departure will diminish the crony capitalism and plundering of the public purse by his family and friends. But it will not fix a broken system. American capitalism's potential to foster innovation and well-being remains unlimited, but currently its flaws are literally draining the life from many Americans. The rent seekers are, and will likely remain, far too powerful for the country's good.

ANGUS DEATON

Writing for PS since 2015
14 Commentaries

Angus Deaton, the 2015 Nobel laureate in economics, is Professor Emeritus of Economics and International Affairs at the Princeton School of Public and International Affairs and Presidential Professor of Economics at the University of Southern California. He is the co-author of Deaths of Despair and the Future of Capitalism (Princeton University Press, 2020).

--

John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

Facebook

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You received this message because you are subscribed to the Google Groups "Socialist Economics" group.
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Angus Deaton: American Capitalism’s Poor Prognosis

One of the great modern economists who focused on poverty and the negative trends in capitalism. Recently, with Anne Case (no relation, AFAIK), author of Deaths of Despair

American Capitalism's Poor Prognosis

Jan 13, 2021ANGUS DEATON

The COVID-19 pandemic has both exposed and accelerated long-term trends that will render the US economy system even more unequal and dysfunctional than it already was. Worse, the Democrats' failure to secure a decisive victory in Congress has dimmed the prospects for badly needed reforms.

PRINCETON – Those who advocate taxing the rich to give to the poor often must endure wearied explanations of why such redistribution is a pointless policy. While the rich are indeed rich, there are supposedly too few of them to tax on a scale that would help the poor.



3Add to Bookmarks

PreviousNext

Rarely does one hear about the opposite process – the upward redistribution whereby a few cents taken from everyone make a few individuals very rich indeed. Yet that is precisely what monopolists and rent seekers do, by overcharging consumers, underpaying taxes, and funding politicians who will protect the process of extraction from the many to benefit the few. Worse, the 2020 US election all but ensures that this "trickle-up" dynamic will continue.

The stock market's buoyancy during the COVID-19 pandemic has been the subject of much wonder. Obviously, with interest rates near zero, investors have few other places to find a positive return; and it is perfectly understandable that the market would celebrate good news like Pfizer's announcement that its vaccine candidate may be more than 90% effective.

The problem, of course, is that the stock market does not account for all future national income; it is concerned solely with the part that goes to profits. At any level of national income, the stock market will do better when profits rise or, by the same token, when the share accruing to labor falls. Since the 1970s, the share of wages in US national income has been shrinking. And since the onset of the pandemic, large tech firms have been doing exceptionally well, while many smaller firms have suffered or closed. Tellingly, on a day when vaccine euphoria drove up the Dow Jones Industrial Average by nearly 3%, the tech-heavy NASDAQ actually fell by 1.5%.

This perverse dynamic makes sense when one considers how the pandemic has accelerated the long-term shift in national income away from labor and toward capital. Not only are workers' jobs vanishing and becoming less secure, but small businesses are increasingly losing out to large businesses that employ few workers relative to their revenue. These developments in turn lift the market, which rewards those who have stock portfolios and defined-contribution pensions, while workers in retail, hospitality, and entertainment are left out in the cold.

If the Democratic Party had won a strong majority in the Senate in addition to winning the White House and holding on to the House of Representatives, there might have been a chance to reverse these trends through legislative action. The US health-care system's plundering of American households might have been checked by the introduction of a public option for health insurance, even if more radical alternatives (like "Medicare for All") remained out of reach. It might have been possible to replace or supplement employer-based health care – which is financed by what is effectively a poll tax on workers – with a system funded through general tax revenue.



Moreover, had the Democrats performed better, it would have been possible to pursue meaningful antitrust action against the Big Tech firms. There would have been at least some chance of passing climate legislation. And the long march of anti-union laws might have been slowed or even reversed. But now, the few congressional Republicans who were willing to congratulate Biden on his victory, and even some centrist Democrats, will oppose "socialist" measures like the Green New Deal or health-care reform.

Moreover, the courts will continue to advance the pro-business agenda. There has understandably been much attention lately on the issue of abortion. But it is worth remembering that the Supreme Court also heads a legal system that tends to adjudicate in favor of economic efficiency, with little or no concern for distribution.

Economists bear a good deal of responsibility for this. In the first half of the twentieth century, the failure of capitalism in the Great Depression allowed for the triumph of Keynesianism, with its role for the state. But that was soon followed by a counterrevolution that began with Friedrich von Hayek just before World War II, and culminated with Milton Friedman and his colleagues arguing – correctly enough – that the state, too, has problems. While George Stigler taught us about regulatory capture, James Buchanan showed that politicians cannot always be expected to act in the public interest, and Ronald Coase demonstrated that externalities can be ameliorated without resorting to state action.

Less convincingly, Friedman insisted that inequality is not a problem, and argued against efficient taxation – whether through pay-as-you-go collection, the inheritance tax, or closing down tax havens. The jurist Richard Posner, meanwhile, played a key role in bringing these ideas to the judiciary. Arguing that justice requires society to maximize its total wealth, he advocated favoring producers over consumers, and the wealthy over the needy. Inequality came to be seen not only as unproblematic, but as the hallmark of a just society.

Make your inbox smarter.SELECT NEWSLETTERS

This conception of justice would be recognized as preposterous were it not so regularly applied by US courts. After reaping the spoiled harvest of these ideas for so long, it is time to reconsider – not by rejecting all of the insights of the post-Keynesian counterrevolution, but by building on and beyond them.

Returning to a more innovative and competitive form of capitalism requires that we reverse the demonization of the state. We currently have a system in which the few prosper at the expense of the many. For two-thirds of Americans without a bachelor's degree, life expectancy is falling, not least because pharmaceutical companies have been given a license (by paying off Congress) to addict and kill people for profit. Some of the world's largest – and previously admired – corporations routinely avoid paying taxes, reneging on their obligations to the social, economic, and state institutions that nurtured them, and without which they could not exist.

President Donald Trump's departure will diminish the crony capitalism and plundering of the public purse by his family and friends. But it will not fix a broken system. American capitalism's potential to foster innovation and well-being remains unlimited, but currently its flaws are literally draining the life from many Americans. The rent seekers are, and will likely remain, far too powerful for the country's good.

ANGUS DEATON

Writing for PS since 2015
14 Commentaries

Angus Deaton, the 2015 Nobel laureate in economics, is Professor Emeritus of Economics and International Affairs at the Princeton School of Public and International Affairs and Presidential Professor of Economics at the University of Southern California. He is the co-author of Deaths of Despair and the Future of Capitalism (Princeton University Press, 2020).

--

John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

Facebook

The U.S. recovery on pause, December brings new job losses

Martin Hart-Landsberg : The U.S. recovery on pause, December brings new job losses

Martin Hart-Landsberg is Professor Emeritus of Economics at Lewis and Clark College, 

Portland, Oregon and Adjunct Researcher at the Institute for Social Sciences, 

Gyeongsang National University, South Korea.  He is a member of the Board of 

Directors of the Korea Policy Institute and the steering committee of the Alliance of 

Scholars Concerned About Korea. He is the chair of Portland Rising, a 

committee of Portland Jobs With Justice, and a member of the 

organizing committee of the Workers' Rights Board (Portland, Oregon).  

A meaningful working-class recovery from the recession seems far away.

After seven months of job gains, although diminishing gains to be sure, we are again losing jobs.  

As the chart below shows,  the number of jobs fell by 140,000 in December.

We are currently about 9.8 million jobs down from the February 2020 employment peak, having recovered 

only 55 percent of the jobs lost.  And, as the following chart illustrates, the percentage of jobs lost remains greater, 

even now after months of job growth, than it was at any point during the Great Recession. 

If the job recovery continues on its current pace, some analysts predict that it will likely take more than three years to just get back to pre-pandemic employment levels.  However, this might well be too rosy a projection.  One reason is that the early assumption that many of the job losses were temporary, and that those unemployed would soon be recalled to employment, is turning out to be wrong.  A rapidly growing share of the unemployed are remaining unemployed for an extended period. 

As we see below, in October, almost one-third of the unemployed had been unemployed for 27 weeks or longer.  According to the December jobs report, that percentage is now up to 37 percent, four times what it was before the pandemic.  And that figure seriously understates the problem, since many workers have given up looking for work; having dropped out of the workforce, they are no longer counted as unemployed.  The labor force participation rate is now 61.5 percent, down from 63.3 percent in February.

Dean Baker, quoted in a recent Market Place story, underscores the importance of this development:

"This is obviously a story of people losing their job at the beginning of the crisis in March and April and not getting it back," said Dean Baker, co-founder and senior economist with the Center for Economic and Policy Research.

Those out of work for 27 weeks or more make up a growing share of the unemployed, and that could have enduring consequences, Baker said.

"After people have been unemployed for more than six months, they find it much harder to get a job," he said. "And if they do get a job, their labor market prospects could be permanently worsened."

And tragically, the workers that have suffered the greatest job losses during this crisis are those that earned the lowest wages. 

It is no wonder that growing numbers of working people are finding it difficult to meet their basic needs.

There is no way to sugar coat this situation.  We need a significant stimulus package, a meaningful increase in the minimum wage, real labor law reform, a robust national single-payer health care system, and an aggressive Green New Deal designed public sector investment and jobs program.  And there is no getting around the fact that it is going to take hard organizing and mutually supportive community and workplace actions to move the country in the direction it needs to go.

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John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

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