Krugman: Autoworkers Strike a Blow for Equality

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It’s not officially over yet, but the United Auto Workers appear to have won a significant victory. The union, which began rolling strikes on Sept. 15, now has tentative agreements with Ford, Stellantis (which I still think of as Chrysler) and, finally, General Motors.


All three agreements involve a roughly 25 percent wage increase over the next four and a half years, plus other significant concessions. Autoworkers are a much smaller share of the work force than they were in Detroit’s heyday, but they’re still a significant part of the economy.

Furthermore, this apparent union victory follows on significant organized-labor wins in other industries in recent months, notably a big settlement with United Parcel Service, where the Teamsters represent more than 300,000 employees.

And maybe, just maybe, union victories in 2023 will prove to be a milestone on the way back to a less unequal nation.




Some history you should know: Baby boomers like me grew up in a nation that was far less polarized economically than the one we live in today. We weren’t as much of a middle-class society as we liked to imagine, but in the 1960s we were a country in which many blue-collar workers had incomes they considered middle class, while extremes of wealth were far less than they have since become. For example, chief executives of major corporations were paid “only” 15 times as much as their average workers, compared with more than 200 times as much as their average workers now.

Most people, I suspect, believed — if they thought about it at all — that a relatively middle-class society had evolved gradually from the excesses of the Gilded Age, and that it was the natural end state of a mature market economy.


However, a revelatory 1991 paper by Claudia Goldin (who just won a richly deserved Nobel) and Robert Margo showed that a relatively equal America emerged not gradually but suddenly, with an abrupt narrowing of income differentials in the 1940s — what the authors called the Great Compression. The initial compression no doubt had a lot to do with wartime economic controls. But income gaps remained narrow for decades after these controls were lifted; overall income inequality didn’t really take off again until around 1980.

Why did a fairly flat income distribution persist? No doubt there were multiple reasons, but surely one important factor was that the combination of war and a favorable political environment led to a huge surge in unionization. Unions are a force for greater wage equality; they also help enforce the “outrage constraint” that used to limit executive compensation.

Conversely, the decline of unions, which now represent less than 7 percent of private-sector workers, must have played a role in the coming of the Second Gilded Age we live in now.



The great decline of unions wasn’t a necessary consequence of globalization and technological progress. Unions remain strong in some nations; in Scandinavia, the great majority of workers are still union members. What happened in America was that workers’ bargaining power was held back by the combination of a persistently slack labor market, with sluggish recoveries from recessions and an unfavorable political environment — let’s not forget that early in his presidency, Ronald Reagan crushed the air traffic controllers’ union, and his administration was consistently hostile to union organizing.

But this time is different. Research by David Autor, Arindrajit Dube and Annie McGrew shows that a rapid recovery that has brought unemployment near to a 50-year low seems to have empowered lower-wage workers, producing an “unexpected compression” in wage gaps that has eliminated around a quarter of the rise in inequality over the previous four decades. The strong job market has probably encouraged unions to stake out more aggressive bargaining positions, a stance that so far seems to be working.

By the way, I constantly encounter people who believe that the recent economic recovery has disproportionately benefited the affluent. The truth is exactly the opposite.

The political ground also seems to be shifting. Public approval of unions is at its highest point since 1965, and Joe Biden, in a presidential first, joined an autoworker picket line in Michigan in September to show support.

None of what’s happening now seems remotely big enough to produce a second Great Compression. It might, however, be enough to produce a Lesser Compression — a partial reversal of the great rise in inequality since 1980.



Of course, this doesn’t have to happen. A recession could undermine workers’ bargaining power. If Donald Trump, who also visited Michigan but spoke at a nonunion shop, returns to the White House, you can be sure that his policies will be anti-union and anti-worker. And Mike Johnson, the new speaker of the House, has an almost perfect record of opposing policies supported by unions.

So the future is, as always, uncertain. But we might, just might, be seeing America finally turn back toward the kind of widely shared prosperity we used to take for granted.

Dean Baker: A High National Debt Can be Bad News, Sort of Like a High Stock Market

A High National Debt Can be Bad News, Sort of Like a High Stock Market

Dean Baker   via Patreon









The media have been giving considerable attention to the national debt in the last year or so. They have some cause, it has been rising rapidly, and more importantly, the interest burden of the debt has increased sharply since the Fed began raising rates last year. But, if we want to be serious, rather than just write scary headlines, we have to ask why the debt is a problem.

The first concern to dispel is the idea that the country somehow has to pay off its debt. Our national debt is in dollars, which the government prints. Unless something truly bizarre happens, we will always be able to print the dollars needed to pay interest and principal on government bonds.

We could have some story that if our economy collapses people could lose confidence in our debt. That is true, but a bit nuts. If our economy collapses, we should be worried about our economy collapsing, the debt is really beside the point.

The more serious issue is that rising interest payments will be a burden. This is a real issue, but there are several important qualifications. First, in spite of the large debt, even relative to the size of the economy, interest payments relative to GDP are not especially high. Currently, interest payments relative to GDP were just hitting 2.8 percent last quarter. They are still below the 4.4 percent share reached in the early 1990s. And, for history fans, this burden did not prevent the 1990s from being a period of general prosperity.




Military Spending

The second point is that we do need to put this burden in a bit of perspective since it is often treated as a generational issue. Suppose the interest burden does rise to three or four percent of GDP, or even higher. Is that an unbearable burden?

Back in my younger days, we use to spend a much larger share of the budget on the military. In the 1950s and 1960s military spending was generally over 8.0 percent of GDP. At the peak of the Vietnam War it exceeded 10.0 percent of GDP. It dropped in the 1970s, but the Cold War buildup under Reagan again pushed it above 6.0 percent of GDP.

Military spending is currently under 3.0 percent of GDP. Suppose a magician came down and eliminated the national debt so we no longer had to pay any interest, but forced us to increase spending on the military to 6.0 percent of GDP. Are we now better off? Can we tell our children that they should be happy?

What we should care about with military spending is that we are secure as a country. If that can be accomplished spending less than 3.0 percent of GDP on the military, then we are much better off than in a world where we are spending 6.0 percent of GDP on the military.

The amount of spending it takes to make us secure, and what that means, are obviously debatable points, but the basic logic is not. From the standpoint of maintaining and improving our living standards, spending on the military is the same thing as throwing money down the toilet.

This is an important point that needs to be yelled loudly at the people anxious to have a New Cold War with China. They also need to recognize that the Soviet economy peaked at around 60 percent of the size of the U.S. economy. The Chinese economy is already more than 20 percent larger using a purchasing power parity measure of GDP. This means that Cold War-type competition with China is likely to be incredibly expensive, even assuming we never get into an actual hot war.

Global Warming: Will We Celebrate Containing the Debt if the Planet Burns?

The third point on this generational issue is that we need to look around at the country and the world. Global warming is having a large and devastating effect on the environment. We are seeing an unprecedented wave of extreme weather events, including droughts, dangerous heat waves, hurricanes and flooding. This will only get worse through time.

It is great that Biden put the country on a path toward clean energy with the Inflation Reduction Act, but we will need to do much more. Thankfully, the rest of the world, and especially China, is far ahead of us. The idea that somehow the debt is an overriding generational issue, when we are facing the destruction of the planet, is something that can only be taken seriously by our policy elites. Our success in limiting global warming will have infinitely more relevance to the quality of the lives seen by our children and grandchildren than anything that happens with the national debt.

Why Spend Money When We Can Just Issue Patent Monopolies?

The fourth point is that direct spending is only one way the government pays for things. The government supports a huge amount of innovation and creative work by awarding patent and copyright monopolies. While these monopolies are one way to provide incentives, they also carry an enormous cost. In the case of prescription drugs alone, they likely cost the country more than $400 billion a year (more than $3,000 per family, each year) in higher drug prices. We will spend over $570 billion this year for drugs that would likely cost us less than $100 billion if they were sold in a free market without patent monopolies or related protections.

If we look at the impact of these government-granted monopolies in other industries, like medical equipment, computers, software, video games, and movies, they almost certainly add more than $1 trillion a year to what households pay for goods and services. For some reason, the people screaming about the debt literally never say a word about the costs the government imposes on us by issuing patent and copyright monopolies.

And, these costs are interchangeable. For example, we can spend more money on government-funded research in developing prescription drugs and require that drugs developed as a result are available as generics sold in a free market. In the standard deficit accounting, we would only pick up the extra cost from the government-funded research. We would not see the savings from cheaper drugs, except insofar as the government paid less for buying drugs.

We could also go the other way. We could give out patent or copyright monopolies as a way to fund various government services. For example, we could give the Social Security trust fund a patent monopoly on ice that lasts for 1000 years. It could finance benefits by charging licensing fees for using ice. That would save the government around $1 trillion a year in Social Security spending. That should make the deficit hawks very happy.

Yeah, that would be absurdly inefficient and be a license for all sorts of corruption. But so is our current patent system, which does things like encourage drug companies to push opioids and lie about the effectiveness of their drugs. But, we know the deficit hawks, and many in the media who push their handouts, don’t care about efficiency, they just want lower debt. So, the patent monopoly on ice should be good with them.

Debt and Stock Prices

Okay, but I promised to say how a higher debt can be bad news like higher stock prices. This requires a little bit of Econ 101. The serious story of how higher debt is bad is that it can lead to higher interest payments.

The “can” here is important. The debt-to-GDP ratio rose considerably in the Great Recession and the years immediately following, but the ratio of interest payments to GDP fell. This was because we had very low interest rates in these years. The Fed deliberately kept rates near zero because it was combatting weak growth and high unemployment, as we faced a period of secular stagnation.

We don’t know yet whether the economy will return to something like secular stagnation as the impact of the pandemic fades into the distance. Some of the factors that led to this stagnation, most notably slower population and labor force growth, and an upward skewed distribution of income, are still present. However, we have seen some reversal of the upward redistribution of income, as wage growth has been strongest for those at the bottom of the wage ladder. But, we don’t know how far this trend will go. We also don’t know if the full increase in profit shares will be reversed.

The impact of new technologies, most notably AI, is still very much unclear. If they do have a substantial impact on productivity growth, then we may again see rising unemployment and a need for the Fed to push rates lower. Also, as we switch to clean technologies, there will be less demand for fossil fuels and many of the associated services. Of course, these technologies may also be associated with an investment boom that will increase demand for labor.

There are reasonable arguments on both sides of the secular stagnation issue, but let’s assume that the Fed does not return to its zero-interest policy, but rather we get an interest rate structure that looks something like what we saw just before the pandemic. In that context, we will see higher interest payments as a share of GDP.

It is worth thinking for a moment why this would be bad. As the Modern Monetary Theory people remind us, the problem of a government deficit is not the financing – we can always print the money – the problem is that it can be inflationary, since it can lead to too much demand in the economy.

Interest payments on the debt don’t directly create demand in the economy. They create demand only when people spend the interest payments. Insofar as the payments are made to high-income people with low propensities to consume, they will have a relatively limited impact on spending and demand. But not all interest payments go to rich people, and even rich people will spend some fraction of their interest.

So, the problem of higher interest payments on the debt is increased consumption demand, which can create inflationary pressures in the economy. This gets us to the problem of a rising stock market.

While some people think of the stock market as a way to raise money for investment, most firms rarely raise money through this channel. In fact, companies typically go public as way for the initial investors to cash out their gains. The main economic impact of a rising stock market is not on investment but rather on consumption.

There is a well-known, stock wealth effect that is usually estimated at between 3 to 4 percent. This means that an additional dollar of stock wealth leads to an increase in annual consumption of 3 to 4 cents. Households currently hold around $30 trillion in stock wealth. If the stock market rises by 20 percent, that would create another $6 trillion in stock wealth.

Assuming that people spend 3-4 percent of this new wealth, we would see an increase in annual consumption of between $180 billion and $240 billion. If we are concerned about excess demand creating inflationary pressures in the economy, then we should be worried about the impact of this rise in stock wealth.

In that sense, a rising stock market is bad news for the economy in the same way as increased interest payments on government debt. If we assume that 70 percent of interest payments are spent, then a 20 percent rise in the stock market will create roughly the same inflationary pressure as $300 billion in additional interest payments.

So, if we are worried that interest on the debt will be leading to inflation, we should also be reporting the bad news on inflation every time we see a big run-up in stock prices. In short, interest on the debt can be a problem, but it gets far more attention than items that are much bigger problems in any realistic assessment of the situation.

Playing Games with GDP Numbers: China’s Growth Has Not Slowed to a Crawl

 Playing Games with GDP Numbers: China’s Growth Has Not Slowed to a Crawl

Dean Baker, via Patreon

GDP growth in the United States is always reported as an  annual rate. This means that if the economy grew 0.5 percent from the  first quarter to the second quarter, it would be universally reported as  2.0 percent growth, with reporters always giving the annual rate. This  is basically four times the quarterly rate. (It’s actually the first  quarter’s growth rate taken to the fourth power, but this will be the  same for small numbers.)

This is a simple and obvious point. It is not something that is  debated among reporters or economists, it is just a standard that has  become universally accepted.

Many other countries do not report their growth numbers as annual  rates. They report a quarter’s growth number at a quarterly rate. That  is fine, there is nothing that makes the use of an annual rate better,  the point is that everyone should know that the number is being reported  as a quarterly rate, if that is the case.

I have often railed at news stories that have reported another  country’s growth number, without telling readers that it is a quarterly  rate. That obviously gives a very distorted picture.

Fareed Zakaria committed this sin today in a Washington Post column that told people that China’s economy is stuck in a rut. Zakaria told readers:

“China’s economy is in bad shape. Economic growth last quarter came in at 0.8 percent, putting China at risk of missing the government’s target for the year.”

Since Zakaria did give a link for his growth figure it was easy to  click through and see that the 0.8 percent figure was in fact a  quarterly growth rate. This translates into a 3.2 percent annual rate.  Zakaria is right that this growth rate is a disappointment for China,  but a 3.2 percent rate is very different from a 0.8 percent rate.

I’m sure Zakaria is well aware of the distinction between a quarterly  growth rate and an annual rate. I’m also sure he would not have made  this sort of mistake on purpose. He could have made his point just fine  using the actual number.

But it does reflect extraordinary sloppiness on Zakaria’s part, as  well as the Post’s proofreading system, that this mistake was not caught  before it found its way into print. I would hope that the Post would  correct it, but I know that the Post’s opinion editors do not care about correcting mistakes.

Dean Baker: The Chinese Need to Stay Poor because the United States Has Done So Much to Destroy the Planet

 Dean Baker -- via Patreon

That line is effectively the conventional wisdom among people in  policy circles. If that seems absurd, then you need to think more about  how many politicians and intellectual types are approaching climate  change.

Just this week,  John Kerry, President Biden’s climate envoy, was in China. He was  asking the Chinese government to move more quickly in reducing its  greenhouse gas emissions. President Xi told Kerry that China was not  going to move forward its current target, which is to start reducing  emissions by 2030.

I know from Twitter that many people think that Kerry’s request was  reasonable and that Xi is jeopardizing the planet with his refusal to  move forward China’s schedule for emission reductions. This is in spite  of the fact that China is by far the world leader in wind energy, solar  energy, and electric cars and that all three are growing at double-digit  annual rates.

The basic complaint is that China must start reducing its emissions  now because of the crisis facing the planet. To my Twitter friends, the  problem is that China is the world’s biggest emitter of greenhouse gas.  It doesn’t matter that it has four times the population of the U.S. and  emits less than half as much on a per person basis. Nor does it matter that its economy is growing  rapidly as it tries to catch up to the living standards enjoyed in the  United States and other wealthy countries.

This complaint against China hinges on two sorts of arguments that  would be dismissed as nonsense if they were used against the United  States.

• Population size doesn’t matter. We care about how much China is emitting on the whole, not per person.
• Levels don’t matter, we only care about rates of change.

Taking these in turn, a line I heard endlessly (maybe it came from  Chatgpt) is that the climate doesn’t care about per capita emissions, it  only cares about total emissions. I have no idea what people were  thinking when they wrote this.

Would it be okay if Djibouti, with a population of just over 1  million had fifty times the emissions it has now, because the climate  only cares about total emissions, not per capita? After all, even with  fifty times its current emissions, Djibouti would only be admitting a  small fraction of what the U.S. emits.

If we said this about every country with a relatively small  population, we would have enormously more emissions than is now the  case. I assume anyone who actually cares about the future of the planet  would not say that it’s okay for small countries to have per capita  emissions that are many times larger than the U.S.

Measured in per capita terms, the United States is among the worst  emitters on the planet. We only have a prayer of preventing a horrible  climate disaster because just about every other country emits far less  per capita.

The second argument raises the question of whether historic emissions  somehow entitle a country to future emissions. Just writing that  sentence seems close to crazy, but that is in fact what many of my  Twitter friends seem to believe.

If we only care about changes and not levels, we are effectively  saying that high levels of past emissions allow us to have high levels  of future emissions. This line becomes even more absurd when we consider  that, in general, higher GDP has been associated with higher levels of  emissions. In other words, at least historically, as countries have  gotten richer, they have emitted more greenhouse gases.

In the context of China, which is no longer poor, but still a rapidly  growing developing country, limiting its future emissions growth would  effectively be saying that the country doesn’t have the right to reach  U.S. standards of living. This sort of restriction applied to poorer  countries would be even more onerous. It would mean that poor countries  in Sub-Saharan Africa, Latin America, and South Asia should be denied  the opportunity to improve the living standards of their populations  because they had not had high emissions in prior years.

The story gets even worse when we consider that the only reason that  the planet now faces a climate crisis is that the United States and  other wealthy countries have spewing vast amounts of greenhouse gases  into the atmosphere for decades. If we all still had 19th or 18th century living standards, global warming would not pose an imminent crisis.

Our China critics are effectively saying that China, and implicitly  other developing countries, must be denied the opportunity to improve  the living standards of their people because we messed up the planet so  badly. That might make sense in intellectual circles here, but that is  not an argument that is likely to impress people in China or anywhere  outside those circles.

Fortunately for the planet, China actually is moving ahead rapidly in promoting clean energy and electric cars. It is now projected to have its emissions peak in 2025, after which they will be headed  downward. This is the result of aggressive policies that it has  undertaken to control its emissions, policies that are far more  aggressive than anything we have put in place here.

The Chinese government apparently has far more concern for the future  of the planet than its critics in the United States. If we did want an  opportunity to put our money where our mouth is, the United States could  adopt a policy of making all the technology that it develops fully  open-source, so that everyone in the world could take advantage of it,  without concerns about patent monopolies or other protections.

That would help to speed the process of diffusion so that clean  technologies could be adopted more quickly around the world. But doing  this could actually mean money out of the pocket of intellectual-types  here. For that reason, don’t expect to see any discussion of  open-sourcing clean technologies in any reputable publication here.  Hurting poor people in the developing world might be a fair topic for  debate, not taking away money from relatively affluent people here.

Enlighten Radio Podcasts: Labor Beat Radio: Is it Time for Single Payer?

Enlighten Radio Podcasts: Labor Beat Radio: Is it Time for Single Payer?: Enlighten Radio Presents:   The Labor Beat Radio Podcast Broadcast LIVE, Tuesday, 9:00 AM Eastern, July 18, 2023 Hosts: John Case, JB ...

notes on the Working Class 1913 - 2002

note: statistics were sparse before WWI, and the call up for WW

Size of wc and prop of society 1913 and now

before WWI labor data is very sparse and not considered accurate. The data below includes all occupations AND farming, both tenant and family farm operations

There were 300,00 workers in the Horse and Buggy industry in 1900.  Virtually none 30 years later.

• 1910 total workforce -- 51 million in 1900 census

38,000,000 men

13 million women

51 million workers

1913 total population  97,225,000

• 2020 population  331,4 million

        2020 workforce 149.8 million

1910 -- 2015 workforce division of labor graph comparison

Notes on 1910 - 1915 data

Comprehensive data by industry do not exist for 1915, but we have information for 1910 from the decennial census. Data from the 1910 Census show that 32 percent of nonfarm jobs were in manufacturing; in 2015, manufacturing accounted for less than 9 percent of total nonfarm employment. The number of people employed in manufacturing was 8 million in 1910 and 12 million in 2015. While employment in manufacturing grew over the past 100 years, employment in other industries grew more.

Transportation and public utilities also declined in percentage terms over the last century, from 13 percent in 1910 to 4 percent in 2015. The number of people employed in transportation and public utilities was 3 million in 1910 and 6 million in 2015.

From 1910 to 2015, employment in mining and the percentage of total employment in mining both decreased. In 1910 there were 1 million people employed in mining, accounting for 4 percent of nonfarm employment; in 2015, the number employed was 25 percent lower than in 1910 and less than 1 percent of total 2015 employment.

Domestic service, such as maids and cooks in private households, accounted for about 9 percent of nonfarm employment in 1915; comparable data for recent years are not available.

Employment in wholesale and retail trade, including eating and drinking places, increased from 3 million (or 13 percent of nonfarm employment) in 1910 to 33 million (23 percent) in 2015.

Far fewer people worked in professional services in 1910. Today’s economy includes professional services related to computers and electronics that didn’t exist a century ago. Fewer than 1 million workers were employed in professional services, accounting for 3 percent of nonfarm employment in 1910. In 2015, 41 million people were employed in professional services, 29 percent of the nonfarm total.

• Over the course of the 20th century, the composition of the labor force shifted from industries dominated by primaryproduction occupations, such as farmers and foresters, to those dominated by professional, technical, and service workers.
• At the turn of the century, about 38 percent of the labor force worked on farms. By the end of the century, that figure was less than 3 percent. 
• Likewise, the percent who worked in goods-producing industries, such as mining, manufacturing, andconstruction, decreased from 31 to 19 percent of the workforce. 
• Service industries were the growth sector during the 20thcentury, jumping from 31 percent3 of all workers in 1900 to 78 percent4 in 1999.

Include sharecroppers

Sharecropping continued to be a significant institution in many states for decades following the Civil War. By the early 1930s, there were 5.5 million white tenant farmers, sharecroppers, and mixed cropping/laborers in the United States; and 3 million Blacks.

Gdp 1913 to now

1913 -- 571 billion

2020 -- 20.1 Trilliion

    

Labor movement size relative to wealth distribution over century

 






Voting rights for labor no data found, except rise in immigrant and informal work, and incarceration has had negative impact.


Bea lumpkin -- shorter work week

1914  -- 50.8 hrs

2020 --  34.6 hrs

Dean Baker: Mixed Progress in the Fight Against Inequality and for Democracy

 

Mixed Progress in the Fight Against Inequality and for Democracy
Dean Baker

I have a birthday coming up, so it seems a good time to assess progress, or lack thereof, on the various issues that I have worked on over the decades. There is some big progress in at least a couple of areas, but not much to boast about in the others.

I’ll start with the success stories.

The Benefits of a Tight Labor Market

The big one, where I feel we really have made huge progress, is the battle for full employment. It might seem like ancient history, but a quarter century ago the absolute standard wisdom in the economics profession was that we could not get unemployment rates below 6.0 percent without ever accelerating inflation. To argue otherwise was to invite ridicule.

The reality repeatedly contradicted the theory. We sustained an unemployment rate of 4.0 percent in 2000, with only a very modest increase in the inflation rate. The recession caused by the collapse of the stock bubble drove the unemployment rate back up in 2001 and 2002, but we eventually did start to see it fall again, eventually reaching levels around 4.5 percent in 2007.

Unfortunately, this drop in unemployment was driven by a housing bubble, the collapse of which gave us the worst downturn since the Great Depression. The timid response to the recession by the Obama administration and the Republican Congress gave us a weak recovery. However, by the end of 2017, the unemployment rate was again approaching 4.0 percent.

The Federal Reserve Board had already begun raising interest rates, following the theory that an unemployment rate this low would trigger inflation. But inflation remained tame. In the summer of 2019, the Fed made the remarkable decision to lower rates, even though the unemployment rate was below 4.0 percent.

Fed Chair Jerome Powell said it was time to give the full employment side of the Fed’s mandate equal weight with the price stability side. He noted the huge benefits accruing to Blacks, Hispanics, people with less education, and people with criminal records from low unemployment. He said, given the huge benefits of low unemployment, he wanted to press the unemployment rate as low as possible, until there was clear evidence of inflation.

This was exactly the script that those of us on the left had been pushing for decades. It was great to hear it from the mouth of a Fed chair.

We saw this story further reinforced following the pandemic. Many leading lights of the economic profession denounced the Biden stimulus package and warned that it would take a prolonged period of high unemployment to bring inflation back down to acceptable levels.

Well, at this point we can say that the package, along with subsequent policies like the infrastructure bill and the Inflation Reduction Act, quickly boosted the economy back to full employment. While inflation did jump in 2021 and the first half of 2022, we are most of the way back down to the Fed’s 2.0 percent target, even as unemployment remains near its half century low. We are not necessarily out of the woods yet, as the Fed will likely have further rate hikes and we have not yet seen the full impact of past hikes, but thus far, things look pretty damn good.

Furthermore, the benefits of a tight labor market for those at the bottom are clearer than ever. Workby Arin Dube, David Autor, and Annie Mcgrew shows that as much as a quarter of the wage inequality that built up over the prior four decades has been reversed with the tight labor markets in the recovery from the pandemic recession. That is a really big deal.

We also have moved away from the idea that we need to weaken unions and reduce labor market supports, like minimum wages and unemployment benefits, to have a strong labor market. These were literally the policies being pushed on countries by the OECD in the 1990s and the start of the century. They reflected the consensus view in the economics profession.

This is no longer the case. Countries with very high unionization rates, like Denmark and Sweden, have managed to maintain high levels of employment and strong growth. It is also now generally recognized that reasonable levels of minimum wages are not impediments to employment. This is huge progress.

Saving Social Security

In the 1990s there was widespread agreement across party lines that Social Security was broken and needed to be “fixed.” Only the ramshackle left and most of the public wanted to protect the current benefit structure. Incredibly, in spite of efforts supported by presidents of both parties, there were no cuts to the program.

This was a period in which the program faced serious vulnerability because of its structure and the demographics of the populations. In the 1990s, and the first decade of this century, Social Security had a large annual surplus. This was due to the fact that the huge baby boom cohort was in its prime working years. The program was structured so that its trust fund would build up a large surplus in these decades, which could then be used to partially cover the cost of the baby boomers’ retirement.

This surplus also created a door for privatization. Instead of putting the money into the trust fund, the privatizers dreamed of turning it over to Wall Street, who could make tens of billions of dollars in fees managing individual accounts.

We managed to get through these decades without privatizing or cutting the program. Now a large portion of the baby boom generation is retired and receiving benefits, eliminating the annual surplus. Also, with this huge cohort either currently dependent on Social Security, or likely to be in the very near future, cuts to benefits will face more opposition than ever. This doesn’t mean that there can never be any cuts to the program, but the probability of cuts that hit a substantial segment of the poor or middle class seems very low.

Failed Efforts

Well, that’s my good news, the story with other issues that I worked on is much less bright.

Patent and Copyright Monopolies

In the effort to promote alternative mechanisms to patent and copyright monopolies for financing innovation and creative work, I would say that we have gotten pretty much nowhere. There is virtually no understanding of how these monopolies work and that there can in fact be alternative mechanisms. There is also almost no understanding of how much money is at stake.

On the first point, it is really hard to get people, including economist-type people, to understand that we don’t need to attach patents to innovation and copyrights to creative work. I don’t know how many times I have laid out a scheme to have the government pay for all the research and testing involved with developing a drug and then have someone ask “how long would the patent be?” [1]

Somehow people just can’t grasp that if the government pays for the research, there is no patent, there would be no point to a patent, and there would be no one to have a claim to one. Patent monopolies are a mechanism for providing incentive. If the government paid the money (as we did with the Moderna Covid vaccine), it already provided the incentive. If the money wasn’t adequate, then people didn’t have do the work.

I recall when I read Marx back when I was an undergrad. In Capital he talks about how people see it as natural that money gets interest, failing to recognize that lending money at interest is a social relationship. There seems to be a similar story with innovation and creative work and patents and copyrights. People seem to think that these government-granted monopolies are inherent to these processes, rather than an explicit policy choice.

There are obviously arguments for these mechanisms as policy tools, but it is impossible to have a serious discussion if people don’t even recognize that they are policy tools and not facts of nature. I don’t know how to advance this point, I just know that, to date, I and others have made very little progress.

I’m sure that part of the issue is that this hits very directly at people’s view of the economy and its fairness. It is absolutely conventional wisdom that the upward redistribution of the last four decades is explained in large part by the development of technology.

However, pointing out that who benefits from this technology and how much is a political decision, destroys that view. As a practical matter, we can make patent and copyright monopolies longer and stronger, or shorter and weaker. We don’t even need to have them at all.

In a world where these monopolies do not exist, there is zero reason to think that all the educated STEM-types would get rich at the expense of everyone else. That may not be a good way to structure the economy, but the point is that it is a possible way. The fact that people like Bill Gates can get hugely rewarded for his talent and work is the result of how we chose to structure the market. It was not “technology.”

The other part of the story is getting people to understand how much money is at stake. Here also the ignorance of well-educated people is astounding. If we had a world without patent and copyright monopolies, we would likely free up more than $1 trillion a year, close to half of all after-tax corporate profits.

In the case of prescription drugs alone we are likely talking about more than $450 billion a year. That comes to $3,000 per family or more than four times the annual food stamp budget. The money at stake with these monopolies swamps the amount at stake in almost all the political battles that take place in Washington.

Apart from the money involved, expecting someone with a serious illness to effectively pay for research that was done long ago should strike anyone as an act of irrational cruelty. Economists all go nuts if you talk about a tariff of 10-20 percent. Drug patents are effectively tariffs of several thousand percent. Furthermore, since we generally have third party payers (insurers or the government) this is not even a question of consumer choice. How can this policy possibly make any sense?

I have been around Washington long enough to know that you don’t just reshape the whole financing mechanism for prescription drugs, medical equipment, or anything else important in one big move. But it should be possible to get a foot, or ideally feet, in the door, pointing the way to alternatives. In recent months I have been hoping that it would be possible to secure funding for a trial of the open-source Covid vaccine developed by Drs. Peter Hotez and Maria Elena Bottari at Baylor College of Medicine and Texas Children’s Hospital.

This vaccine has already been used by over 100 million people in India and Indonesia, so they should not be too much question about its safety and effectiveness. It just needs a domestic trial to get FDA approval so that it can be used here.

If it were approved, the shots would likely cost less than $5 each (they cost $2 in India), compared to more than $100 a shot for the Moderna or Pfizer boosters. This contrast should help drive home the benefits of open-source funding of research, but it is an uphill battle.

For the most part, people, including progressives, can’t even conceive of a world where drugs are cheap. Their hope is largely that the U.S. government will limit drug prices in the same way that governments in Europe, Canada, and elsewhere limit them. But the idea that we would get the government to stop making drugs expensive by giving out patent monopolies, is not even within their realm of thinking. That’s a problem.

The Financial Industry Money Pit

Any economics textbook tells students that the purpose of the financial industry is to facilitate transactions and to allocate capital. That should be fairly straightforward, sort of like the purpose of the trucking industry is to move goods from one place to another.

Unfortunately, while most people grasp the purpose of the trucking industry pretty well, they seem to have forgotten the textbook story on finance the moment they leave the class. The point here is simple, but important. An efficient financial industry is a small financial industry.

We want to be able to conduct transactions quickly and safely. That means I should be able to buy my groceries, pay my rent or mortgage, or do other transactions in the least amount of time and with minimal risk of fraud or theft.

We also want capital allocated efficiently. That means when someone has a useful innovation, they should be able to get the money to market it on a large scale. People also need capital to buy homes, cars, and to pay for education.

The textbook tells us we want these tasks done with as few resources as possible, meaning a minimal number of workers and capital being used. If we applied this standard in thinking about the financial industry, many issues become simple.

Take Bitcoin and other crypto currencies. These currencies serve no purpose for the real economy, they are just a form of gambling. And, how do we deal with gambling? We tax it.

Suppose we had a 1.0 percent tax on all crypto trades. That should radically downsize the industry, while raising a nice chunk of revenue for the government, with no negative effects on the real economy at all.

I know that crypto proponents insist it will eliminate racial discrimination in the financial industry and in other ways create heaven on earth. It’s hard to take these folks seriously, but let’s put it this way. In Utah, I paid 8.0 percent sales tax when I bought a pair of shoes. Surely if crypto is the way to heaven on earth, a 1.0 percent tax won’t stand in the way.

It’s the same story with the financial industry more generally. We will have roughly $40 trillion in stock trades this year, or $160 billion a day. Does anyone think capital would be less efficiently allocated if we cut this in half to $20 trillion a year? A financial transaction tax that cut the volume in trading in half would free up roughly $120 billion a year (0.5 percent of GDP) that is now spent carrying through these trades.

The same goes for other parts of the financial industry. We may not outlaw private equity, but we need not structure our tax laws to give the industry special tax advantages like the carried interest tax break. We could also look to have the Fed offer everyone digital bank accounts so that we could save tens of billions annually in bank fees. And, we could have the federal government offer low cost IRAs, like the federal employees’ Thrift Savings Plan, which would save people tens of billions annually on needless management fees charged by brokerage houses and insurance companies.

On this issue, there is some progress to report. Several states now let private sector employees buy into their state employees retirement system, effectively giving them a low-cost IRA/401(k) option.

But progress in this and other areas would be so much easier if we could just get everyone to remember their intro econ treatment of finance. We want it simple and we want it cheap: full stop.

In this vein, I should probably also mention the ideaof converting the basis of the corporate income tax from profits to the returns companies provide to shareholders (dividends and capital gains). The logic of this is straightforward, corporate accountants tell us how much profit the company made. We can get returns to shareholders from any financial website.

This would effectively be a tax that would be impossible to avoid. The I.R.S. could calculate every company’s tax liability on a single spreadsheet. (That is, all companies tax liability could be calculated on the same spreadsheet.)

Not only does this mean that we could be sure to get the tax rate we targeted, it would also destroy the tax gaming industry. The tens of billions of dollars that companies currently spend on gaming the tax code could instead go to productive uses.

We actually have made serious progress on this sort of switch. As part of the Inflation Reduction Act, we now have a 1.0 percent tax on share buybacks. I’m sure that this tax was not put in place as a step towards shifting the basis for the corporate income tax to returns to shareholders, it could end up being a big step in this direction.

Since buybacks are 100 percent transparent (companies can’t very well keep them a secret), this will be the easiest tax ever from the standpoint of enforcement. When people recognize how simple and easy it is to collect a tax that is based on returns to shareholders, there could be momentum to increase the portion of the income tax that is based on buybacks, dividends, and capital gains. It’s always best to tax things we can see directly, as opposed to a number manufactured by corporate accountants.

Reining in CEO Pay

It is common to see people on Twitter and elsewhere complain about the tens of millions pulled down each year by the CEOs of major corporations. While the complaints are certainly justified, they rarely go beyond moral indignation. Few make the point that CEOs are not worth their paychecks, at least in the very narrow sense that they do not produce for their companies an amount of value equal to their $20 million or $30 million paycheck.

This point is important, since it means CEOs are ripping off the companies they work for. That implies that the shareholders of these companies should be allies in the effort to rein in CEO pay.

While that point would seem obvious, there is almost no recognition of this logical inference from most progressives. Even people who complain about CEOs using stock buybacks to manipulate stock prices and increase the value of their options, rarely take the next step and say shareholders should be upset about CEOs taking money from them.

In my view, the key to bringing down CEO pay is to give shareholders more ability to rein it in. As it stands, the corporate board of directors are supposed to be the ones who act on shareholders’ behalf to limit CEO pay. But a recent survey found that these boards don’t even see it as their responsibility to rein in CEO pay. Rather they see their job as helping top management.

We should be focused on making it easy for shareholders to pressure boards to take CEO pay seriously. I have suggested that the “Say on Pay” votes on CEO pay, which were part of the Dodd-Frank financial reform act, have a bit more teeth.

As it stands, there is no consequence for a no vote on a CEO compensation package, except for a bit of embarrassment. Suppose that directors lost their pay if a vote went down. My guess is that if two or three packages went down, and boards felt some real consequence from overpaying their CEOs, they would start to ask questions like “can we get someone just as good for less money?” That could end the upward spiral of CEO pay and start to bring it back down to earth.

This is not just a question of a small number of top execs getting too much money. The bloated pay for CEOs affects pay structures throughout the economy. If the CEO gets $20 million, the rest of C-suite might get close to $10 million, and third tier execs can get $2 million or $3 million. This also affects pay outside the corporate sector. It is now common for presidents of universities or major charities to get several million dollars a year for their work.

The world would look very different if we had not seen the explosion of CEO pay relative to ordinary workers. If we still had the ratios of 20 or 30 to 1, that we had in the 1960s and 1970s, CEOs would be getting $2 million to $3 million a year. The lower pay for the top end of the income distribution would free up lots of money for everyone else. Unfortunately, we cannot even get a serious discussion of this issue.

Free Trade for Doctors and High-End Professionals

It has become gospel that the United States has pursued a policy of free trade for the last four decades. This is a lie.

Our trade policy has been focused on removing barriers to trade in manufactured goods. This has the effect of putting U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This has the predicted and actual effect of reducing the number of manufacturing jobs in the United States and reducing the pay for the jobs that remain.

While this policy can be justified by pointing to the benefits for consumers in the form of lower prices, we could have gone the same route of “free trade” when it came to doctors and other highly paid professionals. The models showing the gains from trade work the same way when we talk about physicians’ or dentists’ services as when we talk about cars and clothes.

However, our trade negotiators never had free trade in physicians’ services on their agenda. That is understandable, since they probably all have friends and relatives who work as doctors, dentists, or as other highly paid professionals.

But, even if we have to recognize the power relations that are behind trade deals that have the effect of redistributing income upward, there is no excuse for covering up the true story by calling it “free trade.” Trade rules were constructed to redistribute income upward. No one involved in the process had any interest in real free trade.

Anyhow, we continue to get these absurd battles over “free trade.” It’s sort of like debating Catholic or Jewish theology where you first have to accept the tenets of the faith before you can be admitted into the discussion. For now, the participants in trade debates all must pretend that we have a free trade policy, instead of a policy of selective protectionism designed to screw ordinary workers.

Saving Journalism

I raise this one because there is not even a debate on the topic, simply a steady drumbeat of stories about how local newspapers are closing around the country and how national news outlets, both print and broadcast, are laying off reporters because they can’t make money in the current system. While there apparently is a big market for pieces bemoaning the current situation, there is very little interest in discussing policies that could alter the picture and revitalize reporting.

This is unfortunate, because these ideasdo exist. The basic story is finding some way to get public funds to people doing journalism. For whatever reason, we can’t get a serious discussion in major news outlets about how to repair the news system.

I should also mention another aspect to this issue. Many people rightly complain about the outsize power that the rich have in politics. Under the current system, billionaires can basically contribute as much as they want to support their favored candidates or causes.

Here also, there is a lot of ink spilled decrying the situation, but almost no discussion of serious remedies. Not only would it be almost impossible to limit political contributions given the current makeup of the Supreme Court, it’s not clear it would make much difference even if we could.

Suppose no one was allowed to give more than $1,000 to a candidate and/or a PAC or PAC-equivalent. Is anyone proposing measures that would prevent right-wing billionaires from creating another Fox News, or two or three Fox News networks? Alternatively, are there proposals to prevent right-wing billionaires from buying up CBS, NBC, CNN and every other major news outlets?

If right-wing billionaires controlled all the major news outlets, they could effectively run ads for their favored candidates as “news.” They would have no reason to make campaign contributions to get their candidates elected. Their news shows would be far more effective in pushing the case.

If progressives want to be serious about countering the political power of billionaires, there is no alternative to finding mechanisms that give more voice to ordinary people. No one has even conceived of an effective way to restrict billionaires’ political power, much less put forward a proposal that would have prayer in hell of becoming law in anyone’s lifetime.

While we are on the topic of the political power of the rich, it would also be a good idea to have a serious discussion of restructuring Section 230 protection for Internet platforms. There is no obvious reason that Internet platforms should be protected from liability for defamation suits based on third party content, when print and broadcast media don’t enjoy this protection.

Although it is not feasible for these platforms to preemptively screen content for defamatory material, they could be subject to take-down rules in the same way that is now the case for allegations of copyright infringement. We can also write the rules in ways that are likely to disadvantage giants like Facebook and Twitter and benefit smaller sites.

Anyhow, there are an infinite number of ways to slice and dice a Section 230 repeal, but the key thing is to get it on the agenda. As of now, it isn’t. All we get are complaints about the way billionaire jerks run their platforms, as though the rest of us are powerless in the story.

Changing the Narrative Is not Easy

It is not easy to move policy debates, as most people recognize. As the old saying goes, “intellectuals have a hard time dealing with new ideas.” And, as we know, intellectuals control the outlets where these issues get debated, which means it’s hard to find an entry point to even try to move the debate. Anyhow, I will keep trying and maybe the picture will look better on my next birthday.

[1]See Rigged chapter 5 for an outline of my alternative mechanisms. (It’s free.)