Showing posts with label We Are The 99 Percent. Show all posts
Showing posts with label We Are The 99 Percent. Show all posts

Thursday, October 13, 2016

Wells Fargo Chief=Out

Wells Fargo CEO John Stumpf steps down amid sales scandal

"The San Francisco bank said Wednesday that Stumpf is retiring effective immediately and also relinquishing his title as chairman. He won't be receiving severance pay and the bank announced earlier that he will forfeit $41 million in stock awards."

To my friends on the right: This is the direct effect of the Occupy Wall Street Movement. (See also: Tea Party Movement RIP)

To my friends on the left: Stop whining about how you don't have any power. You do.

Wednesday, August 12, 2015

A Call To The Private Sector On Inequality

Peter Georgescu has become another member of the one percent to call for action on the inequality in our country. This time, however, he's going directly to the private sector.

Who will be courageous enough to start the ball rolling? The most obvious choice is our government. But the current Congress has been paralyzed.

Paralyzed by ideological intransigence...

Gerogescu lays out the future quite nicely.

If inequality is not addressed, the income gap will most likely be resolved in one of two ways: by major social unrest or through oppressive taxes, such as the 80 percent tax rate on income over $500,000 suggested by Thomas Piketty, the French economist and author of the bestselling book “Capital in the Twenty-First Century.”

I've said the the same thing many times on this site.

So what are the action items that the private sector can pursue?

First, invest in the actual value creators — the employees. Start compensating fairly, by which I mean a wage that enables employees to share amply in productivity increases and creative innovations.

Second, businesses must invest aggressively in their own operations, directing profit into productivity and innovation to boost real business performance. Today, too many corporations reduce investment in research and development and brand building. As a result, we see a general decline in the value of their brands and other assets. To make up for those declines and for anemic revenue, businesses buy back their stock (now at record levels), and thus artificially boost earnings per share.


Will they do it?

Saturday, August 01, 2015

How's That $15 An Hour Working Out For Seattle?

Well, it's still too soon to tell, obviously, but Ivar's Salmon House in Seattle seems to be handling it just fine.

As Washington, D.C., and other cities consider following Seattle, San Francisco and Los Angeles in phasing in a $15-an-hour minimum wage, Ivar's approach, adopted in April, offers lessons in how some businesses might adapt. Ivar's Seafood Restaurants President Bob Donegan decided to raise prices, tell customers that they don't need to tip and parcel the added revenue among the hourly staff. 

For some of the restaurant's lesser-paid workers - including bussers and dishwashers - that's meant as much as 60 percent more. Revenue has soared, supportive customers are leaving additional tips even though they don't need to, and servers and bartenders are on pace to increase their annual pay by thousands, with wages for a few of the best compensated approaching $80,000 a year. 

It is staff, not diners, who feel the real difference, with wages as much as 60 percent higher than before. One waitress is saving for accounting classes and finding it easier to take weekend vacations, while another server is using the added pay to cover increased rent

"It's been a surprise," Donegan said. "The customers seem to like it, the employees seem to like it, and it seems to be working, at least in this location." 

Rochelle Hann, 25, is a second-generation worker at Ivar's. Like her mom, she has performed a variety of roles, including serving, bookkeeping and even dressing up as a giant clam. If she keeps working 30 hours a week, her annual pay will jump about $12,000 - money she's socking away for accounting classes at a community college.'a almost as if the economy is improving and becoming (gasp!) not quite as hierarchical in nature. Speaking of adding customers, look who else has had to add more staff.

Could we see a return to the golden age of capitalism?:)

Sunday, March 15, 2015

Occupying the Homeless

I remember, quite fondly, actually, the derision towards the Occupy movement. "Occupy a job" was a common dig along with predictions that the movement would never amount to anything.

Yet this story from the front page of newspaper illustrates several things. First, the Occupy movement has amounted to something: helping the homeless have a place to live. And they are doing it through a nonprofit umbrella which means donations, not government help.

Second, they are continuing their mission to reduce inequality by building these homes. That's something Jesus would be proud of, right? That whole helping the poor thing...mentioned more times than anything else in the Bible.

Third, they are doing it in Wisconsin, right in the back yard of Scott Walker. He has stated repeatedly that his policies will help middle class and poor families by freeing up the private sector. Where are their 98 foot houses for the homeless? Where is the Tea Party version of this?

If this is the future of the Occupy movement, I say, "Well done, folks!"

Saturday, July 05, 2014

Billionaire Once Again Warns The One Percent

Nick Hanauer has done it again. His recent open memo to his fellow zillionaires is exceptional. Here are a few great pulls...

At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country—the 99.99 percent—is lagging far behind. The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent. 

But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution. 

And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

Of course, it's not just his fellow zillionaires that need to wake up. It's the 30 percent or so of voters who still buy into supply side economics. These are the people who believe that our nation is divided into two parts: the haves and the soon to haves. It's also no coincidence that these same people would like to see a return to the Antebellum South and its aristocratic framework. That's why the are fighting so hard to maintain the status quo. As Hanauer notes, however, it never works.

If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when. 

When, indeed. I challenge anyone to find an historical example that refutes Hanauer.

The most ironic thing about rising inequality is how completely unnecessary and self-defeating it is. If we do something about it, if we adjust our policies in the way that, say, Franklin D. Roosevelt did during the Great Depression—so that we help the 99 percent and preempt the revolutionaries and crazies, the ones with the pitchforks—that will be the best thing possible for us rich folks, too. It’s not just that we’ll escape with our lives; it’s that we’ll most certainly get even richer.

This is where the whole issue of hubris comes into play. Conservatives just don't want to admit that liberal policies will make wealthy people wealthier. They ignore how a minimum wage hike will give people more money to spend in the economy which will, in turn, lead to more hiring and more wealthy for the wealthy. It's as if the word "demand" has been excised from their brain stems.

I wanted to try to change the conversation with ideas—by advancing what my co-author, Eric Liu, and I call “middle-out” economics. It’s the long-overdue rebuttal to the trickle-down economics worldview that has become economic orthodoxy across party lines—and has so screwed the American middle class and our economy generally. 

Middle-out economics rejects the old misconception that an economy is a perfectly efficient, mechanistic system and embraces the much more accurate idea of an economy as a complex ecosystem made up of real people who are dependent on one another. Which is why the fundamental law of capitalism must be: If workers have more money, businesses have more customers. Which makes middle-class consumers, not rich businesspeople like us, the true job creators. Which means a thriving middle class is the source of American prosperity, not a consequence of it. The middle class creates us rich people, not the other way around. 

Exactly right and props to him for coining middle out economics. It's exactly the kind of focus we need on demand.

So, Hanauer asserts that we need to dramatically raise the minimum wage.

The standard response in the minimum-wage debate, made by Republicans and their business backers and plenty of Democrats as well, is that raising the minimum wage costs jobs. Businesses will have to lay off workers. This argument reflects the orthodox economics that most people had in college. If you took Econ 101, then you literally were taught that if wages go up, employment must go down. The law of supply and demand and all that. That’s why you’ve got John Boehner and other Republicans in Congress insisting that if you price employment higher, you get less of it. Really?

Because here’s an odd thing. During the past three decades, compensation for CEOs grew 127 times faster than it did for workers. Since 1950, the CEO-to-worker pay ratio has increased 1,000 percent, and that is not a typo. CEOs used to earn 30 times the median wage; now they rake in 500 times. Yet no company I know of has eliminated its senior managers, or outsourced them to China or automated their jobs. Instead, we now have more CEOs and senior executives than ever before. So, too, for financial services workers and technology workers. These folks earn multiples of the median wage, yet we somehow have more and more of them. 

Fucking. Brilliant.

Next, Hanauer turns to the size of government and, again, makes a brilliant point.

I’d ask my Republican friends to get real about reducing the size of government. Yes, yes and yes, you guys are all correct: The federal government is too big in some ways. But no way can you cut government substantially, not the way things are now. Ronald Reagan and George W. Bush each had eight years to do it, and they failed miserably. 

Republicans and Democrats in Congress can’t shrink government with wishful thinking. The only way to slash government for real is to go back to basic economic principles: You have to reduce the demand for government. If people are getting $15 an hour or more, they don’t need food stamps. They don’t need rent assistance. They don’t need you and me to pay for their medical care. If the consumer middle class is back, buying and shopping, then it stands to reason you won’t need as large a welfare state. And at the same time, revenues from payroll and sales taxes would rise, reducing the deficit. 

This may seem hard to grasp for those individuals who have a pathological hatred of the federal government but we can make laws that actually reduce the size and influence of our national governing body.

Hanauer closes with an argument I have made many times.

Capitalism, when well managed, is the greatest social technology ever invented to create prosperity in human societies. But capitalism left unchecked tends toward concentration and collapse. It can be managed either to benefit the few in the near term or the many in the long term. The work of democracies is to bend it to the latter. That is why investments in the middle class work. And tax breaks for rich people like us don’t. Balancing the power of workers and billionaires by raising the minimum wage isn’t bad for capitalism. It’s an indispensable tool smart capitalists use to make capitalism stable and sustainable.  

Amen. Let's get started!!

Friday, January 31, 2014

Another 1 Percenter Comes Around

As I have previously predicted, the wealthy are starting to come around on inequality. Bill Gross, the most powerful bond manager of his generation and co-head of a $2 trillion investment management firm, has joined Nick Hanauer and other members of the 1 percent on the perils of this much inequality.

"We're not just experiencing a new Gilded Age, but a Bitcoin Age," says Mr. Gross, referring to the digital currency. "Artificial money, corporate K Street, and Wall Street interests are producing one world for the rich and an entirely different world for the working class," says the founder and co-chief investment officer of PIMCO in Newport Beach, Calif. "It can't go on like this, either from the standpoint of the health of the capitalist system itself or the health of individuals and the family," he adds.

Why not, Bill?

"For the past 10, 20, 30 years, capital has moved away from labor and towards corporations and investors," Gross says. "I'm not sure capitalism can thrive in a system in which ... [labor] has a declining interest, in terms of percentage of the pie. Then ultimately the pie itself can't grow, because consumption can't be supported."

Exactly right. Capitalism can't thrive, most lose their percentage of the pie and the pie itself can't grow. And to think someone as wealthy and knowledgeable about finance as Gross is saying the same things I am...what on EARTH is going on??!!??:)

So what do we need to do?

When Gross highlighted many of these trends and others in an investment outlook piece posted on his company's website in late October, he told his peers that maybe they should be willing to pay higher taxes. More provocatively, he challenged the orthodoxy on capital gains taxes, saying they should be taxed at rates as high as that for income.

Oh no he DI INT!!!

Based on some of the other testimonials in the article, it seems like we have finally turned a corner and that makes me very happy.

One other part of this piece I found interesting...

Just over two years ago, growing inequality was the rallying cry of the "Occupy" movement. Its "we are the 99 percent" slogan has since become part of the cultural lexicon, and many of its members have moved on to fast-food strikes and protests calling for a higher minimum wage.

Again, just as I have been saying..

Friday, November 01, 2013

On Stiglitz: Part Ten

In the final chapter of his magnificent work, The Price of Inequality, Joseph Stiglitz details the steps we must take as a nation if we are to fix our economic problems. Before I get to some of those, though, it's very important to note that he sees two possibilities as potential catalysts for change. He defines these avenues after asking the question, "Is There Hope?"

The first possibility is that most Americans come to realize that they are being duped by the wealthy in this country. The biggest recipients of welfare in this country are the wealthy, not "lazy" poor people. Stiglitz has demonstrated this unequivocally throughout his book. Many wealthy and powerful people in this country have essentially brainwashed Americans into thinking that any sort of talk about inequality leads to communism, internment camps, and loss of freedom. Stiglitz hopes (and so do I) that people are going to wake up to this fact and call them on their bullshit. In many ways, they are the ones that are lazy and have become a drag on our society. Addressing inequality leads to a more efficient system of capitalism and, quite frankly, fairness. Americans are realizing this more and more every day that our system simply isn't fair and it needs to change. Sooner or later, they are going to demand it and we will have a sea change in Washington.

The second catalyst, and the one I see more likely in the near term, is that wealthy people themselves will come to realize that they can't enjoy their lifestyles if there is too great a degree of inequality. They also may act out of simple fear of the natives becoming too restless. Indeed, we see people like Nick Hanauer, Warren Buffet, Bill Gates, and Mark Zuckerberg expressing the need for change because it is in the wealthy's best interest. Stigliz sums up why this is so important.

Alex de Tocqueville once described what he saw as a chief elements of the peculiar genius of American society, something he called "self interest properly understood." The last two words were key. Everyone possesses self interest in a narrow sense: I want what's good for me right now! Self-interest "properly understood" is different. It means appreciating that paying attention to everyone else's self interest-in other, to the common welfare-is in fact a precondition for one's ultimate well being (Adam Smith understood as much. See his The Theory of Moral Sentiments (1759). See also Emma Rothschild and Amartya Sen, "Adam Smith's Economics," The Cambridge Companion to Adam Smith pp. 319-65, in particular p.347). 

Tocqueville was not suggesting that there was anything noble or idealistic about this outlook. Rather, he was suggesting the opposite: it was a mark of American pragmatism. Those canny Americans understood a basic fact: looking out for the other guy isn't just good for the soul; it's good for business.

Again, we are talking about economic efficiency here, not just fairness. Past business leaders in our nation truly understood this. Henry Ford, for example, paid his employees more money so they could afford to buy his cars. Our economy works at top speed when the engine that fuels it (the middle class) has more money. This is exactly why we need government policy that helps them to this end.

So what changes need to be made? Here are few of the many action items Stiglitz lists.

Rent seeking needs to end immediately through curbing the financial sector of our economy. The revenue we gain from this will be able to fund many programs that can help the poor and the middle class. We need to make the banks more transparent and much smaller than they are now. No more "too big or too interconnected to fail." No more predatory lending, excessive bonuses that encourage risk taking, and offshore banking centers that essentially promote tax evasion. Speaking of taxes, the entire code needs to be reformed to a more progressive system with few loopholes for corporations. I have no problem lowering the statutory rate if we lose the loopholes and far too many breaks our nation's corporations get.

In tandem with this, we have to help out the rest, as Stiglitz puts it. We have to improve access to education so we can be more competitive in the age of globalization. We should ordinary Americans save money by creating government incentive and matching programs, for example. Continuing our efforts to have health care for all will go a long way to helping people save money. Changes to government programs like Social Security need to also be made in order to strengthen efforts that have already proven to be successful in reducing poverty.

We need a monetary policy that focuses on employment and growth as well as inflation. Our trade imbalances need to be corrected further than they already are. Our goal should be full employment. Labor needs to be thought of in a completely different way than it is today. With the reality of cheap labor markets around the world, our nation's workers need to be re-educated and put on different career paths. Our growth agenda should be centered on public investment which has shown to yield fantastic returns in our nation's history (the GI Bill, research, public works).

As of right now, we are being held back by myths and ideological intransigence fueled by adolescent hubris. Those who choose to champion these lies (and there really is no other way to put it nicely) are essentially rooting for our country to fail just so they won't be proved wrong. The 1% of this nation, and in particular the financial sector, are using these people to maintain their lifestyles. Reading through my previous entries on Stigilitz, the task is very simple.

It is now time to stop them.

Tuesday, October 22, 2013

On Stiglitz: Part Nine

The penultimate chapter in Joseph Stiglitz's The Price of Inequality illustrates how macroeconomic policy in this country is essentially made for the 1 percent because macroecomic policy, in a broad sense, affects distribution of income. Stiglitz notes that policymakers are not often aware of this and that's why we have the problems we have. People worked hard, studied hard and played by the rules but the best most can hope for in the last decade+ is just to get by. Worse, many were not even doing that as we have seen in earlier chapters in the book. 

A basic rule of economics is that life involves tradeoffs. One alleged tradeoff is the balance between inflation and unemployment. If there is low unemployment, generally speaking, there is inflation because there are more people buying things. If there is high unemployment, inflation is low as there are less people fueling the economy. In some ways, this is exactly what the 1 percent (see: financial sector) want. They make more money if inflation is low so the bondholders interest is for the focus is on inflation, not unemployment. This is where the structural problems with our economy begin. According to Stiglitz, and I agree with him wholeheartedly, there is no such tradeoff.

Imagine, Stiglitz notes, if the focus were on unemployment instead. Finding that right number on the lower end (4%?, 5%?) of unemployment that still keeps inflation low is tricky but if you start from the other side (inflation), the policy that is made tends to benefit the least amount of people...those in the financial sector. If you start from the side of unemployment, or at the very least, look for a balance, you benefit more people and the macroeconomic policy of the country as a whole. This is why the Fed fell asleep in the collapse of 2008. They had no balance, Further, they thought the banks could take care of themselves and needed no oversight. When solutions to the crisis were presented, they focused on inflation (the interests of the bankers and the financial sector) not everyone else.

But the problem, as I have always said, was really with the regulations themselves. The obsessive focus on interest rates erroneously led to the Fed believing that they had some sort of magic "lever," as Stiglitz puts it, that can manipulate the economy.

Lower the interest rate and the economy expand; raise the interest rate and it slows down. And though there are times and circumstances in which the interest rate may have those effects, at other times the links are at beast weak and other instruments might have been more effective. For instance, in response to the real estate bubble , it would have made more sense to raise the down payment requirements for mortgages than to raise the interest rates; one didn't want to slow down productive investments, just to dampen the bubble. Such regulations were anathema to the Fed, with its religious devotion to the price system and the wonders of the market.

Exactly. We're talking about a massively rigid ideology here that sadly, to this day, has not been broken.

Getting back to unemployment, such a high level of joblessness doesn't simply hurt those who are unemployed. It also hurts the rest of us because a natural effect of this is lower wages. People entering the work force for the first time are forced to take a salary that they simply can't live on. Less money goes into the economy as consumer confidence and spending shrinks due to a lack of aggregate demand. The financial sector may enjoy this "labor market flexibility" but the rest of us do not. And it's clear that the economy has suffered due to these magnanimous gifts bestowed to bankers from our monetary policy. This policy, supported by both Republicans and Democrats, has been a disaster.

The Fed's low interest rate policy hadn't led to the resurgence of investment as it had hoped. It did encourage those who were planning investments to substitute cheap capital labor. Capital was, in effect, at a temporary artificially low price , and one might as well take advantage of an unusual situation. This reinforced distorted patterns of innovation that focused on saving labor at a time when it was increasingly in abundance. It is curious that at a time when unemployment among the unskilled is so high, grocery and drug stores are replacing checkout clerks with automatic machines. The Fed was making it more and more likely that, when recovery set in, it would be a jobless one.

My only gripe about this line of thought is that it really isn't a good thing to fight progress. This is the same complaint I have about the Right on issues such as energy, climate change, and education. Our nation has one direction: forward. If low skilled workers are losing their jobs to innovation, then it's time that we retrain them and give them the skills they need to compete in the age of globalization. Other than that, though, Stiglitz is spot on.

How did we get such a crappy monetary policy? Deregulation. I've talked about this extensively so there's no need to repeat myself. Instead, let's take a look at the consequences, via Stiglitz.

This deregulation had two related consequences. First, it led to the increasing financialization of the economy-with all its distortions and inequities. Second, it allowed the banks to exploit the rest of society-through predatory lending, abusive credit card fees, and other practices. The banks shifted risk toward the poor and toward the taxpayer: when things didn't go as lenders had predicted, others had to bear the consequences. The Fed not only didn't discourage this; it encouraged it. It is clear that, from a social perspective, the banks did not help people manage their risk; they created it. But when it came to managing their own risk, the bankers were more successful. They didn't bear the consequences of their actions. 

Stiglitz identifies a common ground here where liberals and conservatives could work together. At the time of the crisis, there wasn't really a choice in terms of letting the banks fail. It would have collapsed the economy. Now, however, we can regulate the industry so that none of these institutions are "too big to fail" or, better yet, too interconnected to fail. In short, Glass-Steagall for the 21st Century. Dodd-Frank is a start but it still gives the Fed responsibility for implementing the new regulations. Its track record thus far has shown that it is less than average in doing this.

At this point in the chapter I realized that Mr. Stiglitz should be the new Fed Chair! Obviously, it's never going to happen especially now that we have Janet Yellin but we do need someone who will kick the inflation obsession.

It should be apparent at this point that the banks should be focusing on banking and not macroecomic policy. How did we get to this point? More importantly, can we ever break free of this framework and have government leaders who are not influenced by the financial sector of this country? Even the evidence that the Fed was forced to reveal, which showed that the large banks were both borrowing substantial amounts of money from them while also claiming publicly that they were in great shape, was not enough to change the system. Indeed, our problem, as Stiglitz notes, is "more ideological conviction than economic analysis." This, of course, comes directly from the NUMERO UNO free market fundamentalist himself, Milton Friedman, a colleague of Stiglitz.

I remember long discussions with him on the consequences of imperfect information or incomplete risk markets; my own work and that of numerous colleagues had shown that in these conditions, markets typically didn't work well. Friedman simply couldn't or wouldn't grasp the results. He couldn't refute them. He simply knew they had to be wrong. He, and other free market economists, had two other replies: even if the theoretical results were true, they were "curiosities," exceptions that proved the rule; and even if the problems were pervasive, one couldn't rely on government to fix them.

Sounds familiar, eh?:) Many of the problems we have with our modern economic policy can be attributed directly to Mr. Friedman. His cult-like worship of the free market has led to far too many people turning brain dead in terms of economic analysis.

Recall that the Fed's main purpose should be focused on inflation, employment and growth. The second of these three has fallen by the wayside as the bankers have more or less taken over the show. So, the government is the problem but not in the way conservatives would have you believe. It's not that it's too big. It's that it simply doesn't function in the way it is supposed to function due to monetarists' obsession with inflation and their complete ignorance of unemployment. This obsession is based on three very questionable hypotheses. First, inflation is the supreme evil. Second, maintaining low and stable inflation is necessary and almost sufficient for maintaining a high and stable real growth rate. Third, everyone benefits from low inflation. Stiglitz wraps up the chapter explaining that none of these beliefs are true and that inflation hawks have been basically telling tales out of school.

For inflation hawks economy is always at the edge of a precipice: once inflation starts, it will be difficult to control. And since the cost of reversing inflation-disinflation, as it's called-is so large, it is best to address it immediately. But these views are not based on a careful assessment of the evidence. There is no precipice, and mild upticks in inflation, if they look as if they might become persistent, can easily be reversed by tightening credit availability. In short, it was simply wrong that the best way to maintain high employment and strong growth as to focus on inflation. The focus on inflation distracted attention from things that were far more important: the losses from even moderate inflation were negligible in comparison to the losses from financial collapse.

So, we need to remove ourselves from the shackles of obsession over inflation. Our monetary policy should strive for the best possible balance between inflation, employment, and growth. We can't continue to make trickle down policy that is made specifically for the benefits of the banks. In a preview of the last chapter, Stiglitz argues that there is no single best policy. Certainly the obsession with inflation has proved that. Further, there is nothing natural about our currently very high state of unemployment or the low level of aggregate demand. It is the result of policy that caters to serve the small number of people in the financial sector in this country and they have scammed us into thinking that any changes will result in another economic collapse.

Therefore, the first step in changing the system is to not believe them anymore.

Sunday, September 29, 2013

Wednesday, September 18, 2013

On Stiglitz: Part Eight

The next chapter in Stiglitz's book, The Price of Inequality, is called "The Battle of the Budget." Written around the time of the 2011 budge battle (see also: When the Right Lost the 2012 Election Due to Moonbattery), it's frustrating that in 2013 we are still having the same fight and have not progressed.

This budget brinksmanship obscured the real economic challenges facing the country: the immediate problem posed by the high level of unemployment and the gap between the economy's potential output and its actual output, and the long term problem of growing inequality. The brinksmanship shifted attention away from these fierce problems to the issues of deficit and debt reduction.

Stiglitz describes this shift as being caused by what he terms " debt and deficit feitishists." Ironic that these people ignored the actual causes of our debt and deficit and, instead, ascribed the cause to their emotional feelings (see: psychosis) about government spending. I'll get to spending later but as he notes correctly, the four main causes of our debt and deficit are: the Bush Tax Cuts, the wars in Iraq and Afghanistan, the Medicare D (a huge rent for the drug companies) and the underperformance of the economy itself due to contraction. The figures for each of these causes are: $3.3 trillion dollars, $2.5 trillion dollars, $500 billion dollars, $900 billion dollars. Given that we have made some small improvements in the tax structure earlier this year, these numbers aren't quite as bad anymore but they still illustrate the need for improvement.

But we still have a fundamental and systemic problem with our tax structure. The people that contribute the least to our economy (the financial sector) are taxed at a ridiculously low rate for the amount of money they make. As Stiglitz notes, the lower tax rates on capital gains did not lead to higher, sustainable growth but rather, two speculative booms (1997, early 2000s) in the technology sector and the housing sector.

Bush argued successfully in 2003 for a (temporary) cut on the tax on dividends, to a maximum of 15 percent, less than half the rate paid by someone who receives a comparable income in the form of wages and salaries. The claim was that it would lead to more investment by firms in plant and equipment, but it didn't. Arguably, it may have had the opposite effect. Firms were, in effect, encouraged to pay out dividends while the tax rates were low, leaving fewer funds inside the corporation for a good investment project, should have turned up.

Stiglitz goes on to argue the need for stiffer taxes on rents and how we need to put more taxes on the toxic things in our economy. He makes a very interesting point that considering the fact that the financial sector nearly brought down the world economy, they are "polluters" and need to be taxed accordingly. For those of you unfamiliar with basic economic theory, taxing good things distorts markets and can do harm. Taxing bad things corrects the erosion of consumer surplus and inefficiency of markets due to the public expense of something like pollution. The public has born a great deal of expense as a result of the financial collapse and the people in those markets should be taxed at a higher rate.

In addition, the financial sector (along with many other sectors of our economy ), no longer need subsidies. It continually amazes me that the Right argues vociferously for less social welfare but wants corporate welfare to continue in earnest. The tax breaks we give to the multi-billion dollar oil industry are ridiculous.

So, Stiglitz has six action items in regards to our tax system'

1. Raise taxes on the people at the top
2. Eliminate loopholes and special treatment for upper incomes
3. Eliminate subsidies
4. Tax rents at higher rate
5. Tax pollution
6. Tax the financial sector similar to the ways we tax pollution given the costs they impose on the rest of society.

As I stated above, the deal on the budget reached earlier this year is a beginning down this path but it's not enough.

Now, seeing the word "tax" is sure to cause the mouth foamers' blood to rise. They will caterwaul and bloviate about how it hurts businesses and they won't hire people but they are pushing a myth, which is a polite way of saying they are lying, as Stiglitz notes on page 225. Suppose you own a business and calculate that hiring a worker will yield you a return of $100,000. $50,000 of that will go to costs the firm has to pay (including taxes, salary, other costs etc). This leaves a profit of $50,000. Now, you had to pay an extra tax of $2500 (5 percent) on that employee, would you still hire? Of course you would. Taxes don't prevent people from hiring if there is profit involved. What prevents people from hiring is a lack of demand (discussed many times on this site) which would push that $100,000 figure downwards. If they don't have the business coming through the door, they won't hire.

Moving past the issue of revenue, let's turn our attention to spending. Stiglitz argues for more spending to really get the economy going again. He dismisses the deficit/debt fetishes and notes...

The United States is an especially good position to pursue this strategy, both because returns to public investments are so high, as a result of underinvestment for a quarter of a century, and because it borrow so cheaply long term. Unfortuneately, especially among the Right (but, even, alas, among many in the center) deficit fetishism has gained ground. The ratings agencies-still trusted despite their incredibly bad performance in recent decades-have joined in the fray, downgrading US debt. But the test of the quality of debt is the risk premium that investors demand. As the book goes to press, there is a demand for US T-bills at interest rates near zero (and, in real terms, negative)

Exactly right. The fetishists don't get to determine the quality of our debt. The free market does. It simply isn't justified on the basis of economic principles. Stiglitz goes on to note that economic stimulus can be achieved through a long standing principle called the balanced budget multiplier (increasing taxes and expenditures simultaneously while taking care to not add any more to the current deficit). He argues that if this happens, GDP would increase two to three times the rate of spending. This growth would decrease the national debt over the intermediate term (pages 217-218).

But won't all this spending make us "like Greece?" No, says Stiglitz...and everyone else who doesn't let their emotions about spending dictate policy (side note: why is it that the Right cite power hungry human nature as the reason why people in the government should not be allowed to spend money yet believe, in the same head, that people are little angels when they make financial decisions privately?). Greece owes money in euros of which they have no direct control. US debt is in dollars and we control the printing presses. The idea that we would default is pure moonbattery. Sure, you'll hear bloviating about inflation but, again, the free market does not see that happening.

One can infer that both from the very low interest rate that the government has to pay on its long-term debt and even more from what it has to pay for inflation-protected bonds (or more accurately, the difference between the returns on ordinary bonds and inflation protected bonds). Now, the market could be wrong, but then the rating agencies giving a downgrade to the United States should have explained why the market was wrong, and why they believed that there is a much higher risk of inflation than the market believed. The answers have not been forthcoming.

Likely because it was politically motivated. The United States knows that the Fed will buy government bonds. Greece has no idea if the ECB will buy their bonds at all. Essentially what's going on here is that the adolescents are playing make believe and saying that there is less faith in the US government than there actually is. Considering they are big believers in the free market, this makes no sense to me.

Some other bits from the chapter...

Reagan supply side economics, which held that lowering tax rates would increase economic activity, so much so that tax revenues would actually increase, has (as we noted in chapter 3) been disproved by what happened after both the Bush and the Reagan era tax cuts.

Ah, but we should never let reality get in the way of a good fantasy, right?

No deficit reduction group suggested a frontal attack on corporate welfare and the hidden subsidies (including the financial sector) that we've stressed in this book, partly because the Right has succeeded in convincing many Americans that an attack on corporate welfare is "class warfare." 

Of course, when Reagan said it, it was okey-dokey.

Regarding Social Security and Medicare...

In the most hopeful scenarios, the Right would privatize both services. Privatization, of course, is based on yet another myth: that government run programs must be inefficient, and privatization accordingly must be better. In fact, the transaction costs of Social Security and Medicare are much, much lower than those of private sector providing comparable services. This should not come as a surprise. The objective of the private sector is to make profits-for private companies, transaction costs are a good thing; the difference between what they take in and what they pay out is what they want to maximize. 

Social Security and Medicare can be fixed quite easily with very simple adjustments phased in over time (increasing retirement age, means testing etc). Unfortunately, no one in Congress seem willing to move towards that end. Privatization is absolutely the wrong answer and we all know the real reason why the Right wants to get their hands on that money. As Stiglitz notes..

The agenda for privatization of Social Security was not about providing more money to America's retirees or more security or about increasing efficiency. It was about one thing only: providing more money to the 1 percent at the expense of the 99 percent-more money to Wall Street. The magnitudes involved are potentially enormous. Think of the $2.6 trillion in the Social Security Trust fund. If Wall Street could get just 1 percent per year for managing that money, that would be an extra bonanza for the managers of $26 billion dollars a year.

It's about as obvious as the smell of pig shit.

Stiglitz round out the chapter with a discussion of how the Right likes to blame the victim (in this case, the middle class) for our economic woes. Cuts in wages reduce economic demand so, again, it makes no sense to blame your average worker, especially considering how well the wealthy have done despite the contraction. On the last few pages of the chapter he offers a scathing indictment of austerity (pages 230-231) as well as an evisceration of the myth of the failed stimulus (page 232)., explaining in detail just how awful it would have been had we not had it and how the Obama administration failed to note just how deep the hole was that we dug ourselves.

He challenges anyone to find historical examples of austerity actually working in more than just rare cases in countries that are small and had trading partners experiencing a boom. He blows apart the myth of how a government budget should be like a household budget. Considering that the former can change the macro-economy and the latter counter, one would think the differences are obvious.

So, as this latest round of budget battles gets underway, Stiglitz is correct when he says government spending can be very effective. Funds directly spend on high productivity, structural reform, and basic infrastructure will increase productivity which will include an increase in demand. One need only look at examples from the past like Grand Coulee Dam or the current return on government investment in research to see that this is true.

(Note: the link to The Price of Inequality in the first line of this post takes you to where you can look inside and read the entire book and source material)

Saturday, September 14, 2013

Still Stagnate

Emmanuel Saez from UC Berkeley has released his latest report on inequality and it reminds me that I need to finish off my last three installments of Joseph Stiglitz. I'll have Part Eight up sometime next week, perfectly timed as well as the title of that chapter is "The Battle of the Budget."

Saez's latest report has quite a bit of useful information, including...

Top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4% from 2009 to 2012. Hence, the top 1% captured 95% of the income gains in the first three years of the recovery. From 2009 to 2010, top 1% grew fast and then stagnated from 2010 to 2011. Bottom 99% stagnated both from 2009 to 2010 and from 2010 to 2011. In 2012, top 1% incomes increased sharply by 19.6% while bottom 99% incomes grew only by 1.0%. 

So, what does all this mean?

Top 1% incomes are close to full recovery while bottom 99% incomes have hardly started to recover. 

Shocking, I know:)

Saez notes that after the Great Depression, there were policy changes that reduced this income concentration. Today, however, there have been none. Again, I'm shocked.

On page seven, the data shows that during the Clinton administration, the wealthy did quite well, increasing their income by 98 percent! Yet, so did the 99 percent, who saw their income increase by 20 percent. Now, take a look at the Bush Years. It's apparent that the policy changes under his administration favored the wealthy and even then, underperfomed compared to Bill Clinton. The collapse of 2008 seems to have permanently stagnated the income of 99 percent of Americans.

We simply can't have an economy like this. Two thirds of our economy is consumer spending and there just aren't enough people spending. They don't have any extra money.

So, what do we do now? Well, any policy changes are going to be nearly impossible to pass with the Republicans hell bent on the president failing. They certainly don't want any successes on his watch as that would really drive home the contrast between the utter failure of George W. Bush and any potential gains under Barack Obama. In fact, our economy is doing mildly better and that's just about all they can tolerate as they still have to have something negative to caterwaul about.

In some ways, I hope that we elect a moderate Republican so he or she can do all the things that Barack Obama was not allowed to do because of adolescent temper tantrums.

Tuesday, August 13, 2013

Thursday, August 08, 2013

Tuesday, March 19, 2013


Here's an interesting piece from a few weeks ago about the Occupy Movement. While they may appear to have fallen off the map (at least according to the bigger media outlets), stories like this pop up all the time.

“Many participants had a personal connection to the economic crisis that helped spur the Occupy movement,” said Ruth Milkman, sociology professor and co-author of the study, in a release. “You had people graduating from high school and college, only to find that the economy wasn’t working for them.” Professor Milkman, and two other professors, Stephanie Luce, and Penny Lewis, interviewed 729 protesters during last year's May Day events, and conducted longer interviews with 25 people "who were core activists in the movement."

I see this movement perhaps morphing into a student loan/student debt advocacy group. I also give them credit for not making specific demands and staying true to their vision. My only beef remains with the physical occupation meme but it appears that their web site may be changing that.

Wednesday, August 08, 2012

Saturday, July 21, 2012

Friday, June 01, 2012

What amazes the most about these figures is not the disparity but the willful ignorance of the right and the cries of "class warfare" and "wealth envy." With an economy that is 70 percent consumer spending, it's no wonder ours is stagnant with so much wealth at the top.

In addition, I fear that if this trend continues we may indeed have a socialist revolution and it will be the real ones, not the make believe ones that exist only in the minds of guys like Bill Whittle and Kevin Baker.

And it will all be because we had to manage their fantasies...

Sunday, May 27, 2012

Still Not So Much

Remember how the whole one percent-ninety nine percent narrative was dying? Or dead? Yeah, still not so much. Take a look at this photo that I snapped near my house.

Safe? Safe from what exactly? Financial sector guys running an anti-Wall Street ad to get people to invest...I love it!

And their company name isn't bad either:)