Archive for the ‘Economy’ Category

China pioneers digital currency

May 26, 2021

The case for economic nationalism

May 11, 2021

Political scientist Thomas Ferguson often points out that the United States, unlike other rich nations, has never had a labor party—a political party dedicated to the cause of organized labor.

Instead, Ferguson says, the conflict of political parties in the USA is a conflict of business interests—protectionism vs. free trade, tight money vs. low interest rates, public works vs. low taxes and so on.

That’s not to say that wage earners have no stake in the outcome of elections. Some business interests are more favorable, or less unfavorable, to working people than others.

It is just that no political party or political faction gets far without the backing of some business interest. Labor unions reached the height of their political power during the New Deal, but even in that era, they were only one seat at the table along with others, such as the oil industry (then aligned with Democrats), the real estate industry and so on.

Bernie Sanders tried and failed to make the Democratic Party into a labor party. Now Republicans such as Tom Cotton, Josh Hawley and Marco Rubio hope to win the allegiance of working people through a political program called “national conservatism.”

It is basically the program of Alexander Hamilton, Henry Clay and William McKinley.  If you squint your eyes, it also includes much that Donald Trump talked about doing.

The idea is to concentrate on rebuilding American industry, which of course would be good for manufacturers and investors but also for working people, and not just factory workers.

The elements of such a program would include:

  1. Public-private partnerships to improve technology and productivity.
  2. Use of tariffs to protect key American industries, but also maintain access to key raw materials.
  3. Rejection of trade treaties or international institutions that limit national economic sovereignty
  4. A strong focus on competing with China.
  5. A massive public infrastructure program to rebuild and maintain roads, bridges, harbors, airports, railroads, dams and levees, the electrical grid and water and sewerage systems
  6. Investment in scientific research.
  7. An end to regime change wars and reduction in military spending.
  8. An end to weaponized economic sanctions
  9. Control of unauthorized immigration.
  10. Support for public education, with an emphasis on vocational training and STEM – science, technology, engineering and mathematics.
  11. Tax credits as an alternative to welfare programs.

What is left out?  Stronger labor unions.  A inflation-adjusted minimum living wage.  Reductions in energy use and consumption to fight climate change.

Politically, this is a more feasible program than the Green New Deal.  It probably would be better than what we have now.

In particular, I think anyone who believes in democratic governance has to be a nationalist to some extent, because, at the present moment in history, national governments are the highest level of institutions over which voters have any influence.

I think the world needs more, rather than less, international cooperation, but that’s different from having the world run by the World Trade Organization, International Monetary Fund and global corporations.

Would economic nationalism solve our problems?  No, not by a long shot.  But it could be a step in the right direction. 

LINKS

Rebooting the American System on American Compass, a symposium including essays by Marco Rubio and Tom Cotton.

The Bully Platform , a review of Josh Hawley’s biography of Theodore Roosevelt for American Compass.

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From an industrial to a medical care economy

May 5, 2021

When I first came to live here in Rochester, N.Y., the local economy was dominated by Eastman Kodak Co. and Xerox Corp.

Now both companies are shadows of their former selves, and the largest employer is the University of Rochester, mainly because of the size and scope of the UR Medical Center.

Our business news used to focus on Kodak’s and Xerox’s latest products, high-tech startups and employment and profits figures of major companies.  Now it’s more about restaurant openings and closings.

The growth of the URMC is a good thing, I guess, although much of it is through acquiring formerly independent hospitals and clinics.  I’m glad of the good care I get from URMC’s Wilmot Cancer Center. 

But it’s not as if medical care is an adequate substitute for a strong manufacturing base.  It’s the fable of the village where people made a living by taking in each others’ washing. 

On the other hand, if we can produce all the stuff we need with less back-breaking, health-destroying labor, and devote more resources to caring for each other, that’s a good thing, not a bad thing.

My friend Steve from Texas referred me to a new book, The Next Shift: The Fall of Industry and the Rise of Health Care in Rust Belt America, which describes the same thing going on in Pittsburgh, Pa.

I don’t know when, if ever, I’ll get around to reading or reviewing it.  My reading and writing speeds are slower than it used to be. But here are some links that give the gist of it.  The author, Gabriel Winant, is on to something.

LINKS

The Rise of Healthcare in Steel City, an interview of Gabriel Winant for Dissent Magazine.

Gabriel Winant’s Book, “The Next Shift,” Portrays a Rust Belt City’s New Working Class by Scott W. Stern for The New Republic.

First Nurses Saved Our Lives, Now They’re Saving Our Health Care by Sarah Jaffe for The Nation.

Adam Tooze on the Biden administration

April 30, 2021

For some Joe Biden has already exceeded expectations. For others his economic program is nowhere near enough to address the climate crisis and American decline.  While his Covid relief package has seen billions dispensed immediately, the Jobs Plan proposes to invest $35 billion in green R&D over eight years – less than Americans spend annually on pet food. 

So how radical is President Biden? Is there such a thing as ‘Bidenomics’?  And does the new President represent a break with the orthodoxy of Democrat predecessors such as Bill Clinton and Barack Obama?

Discussing all those questions on the UK’s Downstream with Aaron Bastani is Adam Tooze, Professor at Columbia University.

He is the author of The Deluge: The Great War, America and the Remaking of Global Order, 1916-1931; The Wages of Destruction: the Making and Breaking of the Nazi Economy and Crashed: How a Decade of Financial Crises Changed the World —all outstanding books.

The video interview runs about an hour, which is long to watch something on a computer screen, but I think it is worth taking the time.  Tooze has a wide range of information, a powerful analytical mind and a sharp tongue.  He takes a global view rather than an American view.

All this makes him interesting.  He is, possibly, a little more inclined than I am to regard politics as a clash of opinions than a struggle for power or a conflict of interests.

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A chart of two recessions

March 9, 2021

Click to enlarge.

The Employment Situation Is Far Worse Than the Employment Rate Indicates by Calculated Risk.

Will we have a K-shaped recovery?

March 3, 2021

A K-shaped recovery is when the holders of financial assets do very well, and wage-earners don’t.

The recovery from the Great Recession of 2008 was a K-shaped recovery.  The Obama administration bailed out the financiers who helped cause and deepen the recession, and left mortgage-holders to fend for themselves.  

The political result was a decline in the Democratic vote, which made possible Donald Trump’s victory in 2016.  During the pandemic recession of 2020, the response of both Democrats and Republicans was to bail out the financial institutions and Fortune 500 corporations, while giving very limited help to the unemployed, front-line workers and small-business owners.

Evidently President Biden and Democrats in Congress realize that the government needs to do more now than it did then.  That’s good.  But will they do enough?

Here’s what Matt Taibbi has to say:

This is a fascinating moment in American history. On the one hand, generations of elite-focused politics have left a tiny oligarchical minority not only in possession of massively increased wealth, but also political power. Since 2008, we’ve seen increased disparities in income, but also criminal justice outcomes, regulatory attention, access to tax loopholes, political influence (through decisions like Citizens United), vulnerability to surveillance, and rights to transparency, and, lately, speech. With the corporate-friendly Biden administration in office, there’s a clear opportunity for his backers to continue the K-shaped influence distribution if they wanted.

But we may be at the end of the era where even the most rapacious interests feel they can get away with such policies. Between the 2016 election of Trump, the near-nomination of Sanders in 2020, and widespread unrest on both the left and right, it sounds like the Washington consensus is inching toward the realization that they finally have to deliver something significant for ordinary people, if they want to keep their cushy DC sinecures, to say nothing of staying pitchfork-free.

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Larry Summers says $2,000 is too much.

December 29, 2020

Larry Summers

Larry Summers is one of the USA’s most renowned economists.

He has been chief economist for the World Bank, Secretary of the Treasury in the Clinton administration, president of Harvard University and director of the National Economic Council in the Obama administration.

As Matt Taibbi points out, Summers has consistently advocated for bailouts for failed financial institutions and consistently opposed help for individuals in distress. 

Currently he opposes sending $2,000 stimulus checks to Americans to offset the COVID recession because it would “overheat the economy.”

LINKS

Trump-Pelosi $2,000 Stimulus Checks Are a Big Mistake by Lawrence H. Summers for Bloomberg Opinion.  [Added 12/30/2020]

Neoliberal Champion Larry Summers Opens Mouth, Inserts Both Feet by Matt Taibbi for TK News.

Why Larry Summers MUST Believe $2,000 Checks Are a Bad Idea by Ian Welsh [Added 12/30/2020]

Nearly half of Americans blame GOP for lack of $2,000 stimulus checks by Business Insider [1/3/2021]

Homes of Nancy Pelosi, Mitch McConnell Are Vandalized by CNN Politics.  [Added1/3/2021]

Domestic fossil fuel industries in crisis

December 28, 2020

The domestic U.S. fossil fuel industry is in trouble.  Hundreds of thousands of jobs are at stake.  President Joe Biden will face a choice: try to save them or replace them with something better.  There is a good article in Dissent magazine about this.

In 2016,  [Donald] Trump charged Barack Obama with waging a “war against coal” and promised to bring the sector back to its former glory.

He manifestly failed to do so, but his rhetoric still proved an effective bludgeon against Hillary Clinton in Appalachia during the campaign.  In fact, more coal plants were retired under Trump than in either of Obama’s terms in office.

U.S. coal production had already been declining for years, as cheap natural gas edged it out of the energy mix used in power plants.  Coal jobs had been disappearing for years even before that, as the industry replaced workers with machines.

At its peak in the 1920s, the industry employed over 800,000 people in the United States.  Today, only about 42,000 coal mining jobs remain.

As coal companies have gone bankrupt, they have shed their pension obligations to former workers, leaving the federal government to pick up the bill.  Last December, Congress bailed out nearly 100,000 coal miners’ pensions.

In the long run, this was a good thing, not a bad thing.  Of all the important sources of energy production, coal is the dirtiest.  It generates the most air and water pollution and the greatest hazards to its workers’ health and the public health.  Still, that is no consolation if your livelihood depends on coal.

As energy researchers point out, coal is the canary for other fossil fuel industries. Oil isn’t on quite the same decline yet, but it’s headed in that direction.

The American fracking industry has expanded rapidly in the past decade with the use of cheap credit, and with encouragement from Obama, who boasted of making the United States the world’s leading oil producer.

But the shale oil that fracking produces is only profitable when oil prices are relatively high, and the overproduction of shale gas has glutted global markets.

The combination of a pandemic-spurred decline in demand and a price war between Saudi and Russian producers sent oil prices plummeting this year, resulting in a record number of bankruptcies among American oil producers.  An estimated 107,000 oil industry workers lost their jobs in the United States this year.

While some of those may come back as the economy recovers (whenever that is), many will not. Some energy analysts suggest that the world may have hit “peak oil demand,” as renewable energy begins to replace fossil fuels.  The Houston Chronicle reports that oil production employment in Texas “may never fully recover” as the overextended shale oil sector consolidates and learns to get by with fewer workers.

Source: Dissent Magazine

The fact that the fracking industry, or any other fossil fuel industry, is unprofitable doesn’t necessarily mean it will cease operations.  The economic incentive for an industry in the red is to do everything possible—in this case, extract every little globule of shale oil and gas—to minimize the loss.

Of course, moving away from fossil fuels is a good thing, not a bad thing—also overall.  Global warming is not imaginary.  Greenhouse gas emissions are real.  But what about all the people whose jobs depend on oil and gas?

We need something like a Green New Deal to create useful and sustainable jobs to replace jobs lost.  Without some such program, Americans will be forced to choose between short-run economic survivable and a livable planet in the long run.

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The coming pandemic economic crisis

November 30, 2020

Joe Biden will be sworn in as President of a nation in which millions are unable to pay their bills and most of the programs to help them will have expired.

There will be much that he can do, with or without the cooperation of the Senate.  But what he will do is another question.

Here’s the deal.  The Center on Budget and Policy Priorities reported that—

  1. Nearly 26 million American adults—12 percent of all adults—reported they sometimes or often had difficulty in putting enough food on the table during the first week in November.  That’s triple the pre-pandemic percentage.
  2. An estimated 13.5 million adult renters—about one in five renters—were behind in their rent.
  3. Nearly 81 million adults—one in three—reported it was somewhat or very difficult to pay their usual bills.
  4. In September, some 31 million Americans met the official definition of “unemployed” or were part of a household of an unemployed person.

Bankruptcy filings are mounting, and that is just the tip of the iceberg.  Many owners of failed small businesses can’t even afford to file for bankruptcy.  State and local governments, meanwhile, are running out of money.

Most of the federal emergency programs to alleviate the crisis will expire at the end of the year.  The $600-a-week supplement to state unemployment insurance expired July 31.  The rest of the unemployment insurance supplement will expire at the end of the year.  An estimated 13.5 million Americans benefit from pandemic-related unemployment relief.

The Senate and House of Representatives are deadlocked  on how to extend emergency programs.

So will the moratorium on evictions decreed by the Centers for Disease Control.  That wasn’t sustainable as a permanent policy anyway.  Property owners who make a living from rental income need that income to maintain the properties and usually to pay for utilities.

And the moratorium on student debt payments decreed by President Trump also expires at the end of the year.  About 32 million Americans had loans eligible for suspended payments. 

Both the renters nor the student debtors still owe the full amount.  They got a temporary suspension of payments, not relief.

∞∞

Joe Biden is the first President to be take office in the middle of a national crisis in which one house of Congress is controlled by the opposition political party.  This limits his freedom of action, but progressives say existing law gives him a great deal of power.

The Higher Education Act gives the Secretary of Education authority to settle all publicly-held student debt and cancel all or part of it.  David Dayan of The American Prospect says that covers 95 percent of American student debt, which is up to $1.5 trillion.  This would help stimulate the economy by making it easier to get a home mortgage or an auto loan.

Biden also would have the authority to forgive up to $50,000 of student debt by executive order.

The Affordable Care Act authorizes the Secretary of Health and Human Services to create a pilot program to cover medical expenses of anyone who suffers from an environmental health problem.   The coronavirus, Dayan said, is an environmental health problem.

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Snapshots of the pandemic recession

November 30, 2020

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Source: Center on Budget and Policy Priorities.

It’s still the economy, stupid

November 29, 2020

Bill Clinton and Barack Obama were elected President primarily because of the economic failures of their predecessors.  Each of them faced a backlash in the midterm elections following their victories, at least partly because of their economic policies.

The same thing will happen to Joe Biden unless he can act decisively and quickly to meet the impeding economic and pandemic crises, according to political scientist Thomas Ferguson in an interview with podcaster Paul Jay. 

Clinton ran in 1992 on the slogan, “It’s the economy, stupid.”  But during his two years, he did little to improve the economy.  He pushed through the North American Free Trade Agreement, which had been part of the Reagan agenda and was opposed by organized labor.  He failed to get Congress to even consider a health insurance reform bill.  Republicans won control of both houses of Congress in 1994

Obama was elected during the 2008 recession.  His administration rescued failed banks, but did not fully implement a law to rescue victims of foreclosures.  Republicans won control of the House of Representatives in 2010.

The decisive factor in the 2016 election was the voters, of all races, who supported Obama in 2008 and 2012, but either voted for Trump and declined to vote at all in 2016. 

The notion that racism and sexism were the primary factors driving the Trump vote is not borne out by the data, he said.  Economics was very important too.  Trump’s promise to revitalize manufacturing and impose tariffs on imports gave him just enough votes to squeeze out a majority in key industrial states.

The rural working-class found their lives a little better under Trump and don’t believe the Democrats care about them.  Some of this was the momentum of the economic recovery that had begun under Obama.  Much of it, according to Ferguson, was due to the Federal Reserve System artificially pumping up the economy by holding down interest rates.

He said polls indicate Biden’s margin of victory came from voters in the income brackets between $100,000 and $200,000—not the ultra-rich, but not the wage-earning class, either—who are uncertain about their economic future.  Biden’s message was reassurance and a promise of economic stability.

Trump’s gains among Mexican-American voters along the Texas border were due to so many of them working in the oil and gas industry, he said; some of them found construction work in building Trump’s border wall.

The received wisdom is that big business leaders supported Biden over Trump because they thought Trump is too erratic.  Biden did get a lot of campaign contributions from Wall Street, but much of corporate America supported Trump—the oil and gas industry, the pharmaceutical industry and pollution-heavy industries such as pulp and paper making.

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Donald Trump’s big accomplishment

October 24, 2020

Trump’s Biggest Economic Legacy Isn’t About the Numbers by Patricia Cohen for the New York Times.  Hat tip to Steve from Texas.

I’m still glad I’m not a young person today

October 9, 2020

A majority of young adults are living with their parents for the first time since the Great Depression by Richard Fry, Jeffrey Passel and D’Vera Cohn for Pew Research Center.

The pandemic has pushed nearly 30 million young adults to move in with their parents by Erica Pandey for Axios.  The pandemic is only part of the story, in my opinion.

Japan’s Shut-ins, Hikikomori, Are Living With Their Parents and Have No Jobs by Yoshiaki Nohara for Bloomberg Business Week.

The U.S. never recovered from the 2008 crash

September 11, 2020

LINK

America’s Current Jobs ‘Great Depression’ by Jack Rasmus.  Important.  Another Great Depression is not only possible, but may already be upon us.

The pre-pandemic Trump economy in charts

September 11, 2020

Click to enlarge.

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For good and ill, the Trump economy was a continuation of the Obama administration.  The only thing Donald Trump did, pre-pandemic, that had an immediate effect on the economy was to push legislation to cut upper-bracket taxes.

I thought there would be a recession, not specifically because of any specific thing President Trump would do, but because I thought that all the conditions that brought about the 2008 recession still existed, and that Trump would not try to change them.

I was surprised that the boom continued as long as it did.  I did not and could not have predicted the pandemic, which changed everything.  I don’t think Trump has handled the pandemic crisis well, but it would  have been an economic catastrophe regardless of who was in the White House.

None of this is an excuse for Trump’s failures.  Presidents are not graded on the curve; they are graded on a pass/fail system.

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A constructive future for the GOP

August 26, 2020

When Donald Trump was campaigning in 2016, the most powerful thing he said was, ‘We don’t make things in this country anymore.’

He campaigned in the Rustbelt and promised to rebuild American manufacturing.  He said the leaders of China, Mexico and other countries are laughing at us for allowing our industrial base to decline.

He promised to repeal and reject pro-corporate trade treaties.  He promised to stop illegal immigration.  He promised a trillion-dollar infrastructure program. He promise to ‘drain the swamp’ of special interests.

He promised to repeal and replace Obamacare with something better.  He promised to wind down the forever wars in Afghanistan and the Middle East and improve relations with Russia.

Nobody else was talking about these issues except Bernie Sanders.  Npbody, including Sanders, talked about them in this year’s election campaign.

Trump did do some things to carry out his promises.  He rejected the pro-corporate Trans-Pacific Partnership agreement.  He canceled NAFTA and replaced it with a new agreement that was less bad.

He imposed new tariffs on Chinese imports in a willy-nilly way.  He did not propose a systematic industrial policy to rebuild American industry.

On the other hand, he worsened Obamacare instead of improving it.  He did not end the wars.  His administration stepped up the Cold War with Russia.  He did not clean house of special interests; just the reverse.  But it is not as if his Democratic opposition was proposing something better.

Trump benefited from the economic recovery that began under the Obama administration.  If not for the COVID-19 pandemic and his failed response, he would have an excellent chance of winning a fair election.

If I were a Republican strategist, I would be content to see the Democrats win the 2020 election, have them take the blame for the impending economic crash and pick up the pieces in 2024.

There is an emerging school of thought in the Republican Party called National Conservatism.  It consists of an industrial policy to rebuild industry and infrastructure, cancellation of free trade agreements, a non-interventionist foreign policy and social conservatism.

With such a policy, and with a candidate who did not make a fool of himself on a daily basis, like Trump., the GOP could win and deserve to win.

I don’t think a hypothetical national conservative administration would do everything I think needful.  I can’t imagine Republicans supporting a Green New Deal or strong labor unions.  But if such an administration was serious about ending the wars and reversing de-industrialization, it would be an improvement over what we’ve got now.

A certain amount of economic nationalism is needed because all international economic institutions are controlled by global corporations and banks.  At this point in history, the nation-state is the highest level subject to democratic control.

I am not predicting the Republicans will actually choose this path.  I am speculating on the best path open to them.

LINKS

The New Populist Right Imagines a Post-Pandemic America on BIG by Matt Stoller [Added 8/28/2020]

National Conservatism Conference Draws Big Names by Emma Green for The Atlantic.

National Conservatism Conference: ‘Intellectual Trumpist’ Movement Takes Shape by Jimmy Quinn for National Review.

Getting Behind Enlightened Nationalism by Patrick J. Buchanan from his new book.

Joe Biden is already planning a failed presidency by Ryan Cooper for The Week.

Richard Wolff on the coming economic crash

July 28, 2020

Snapshot of the coronavirus recession

June 17, 2020

 

Click to enlarge.

It’s going to take more than reopening to repair the damage.

Thomas Piketty on corporate co-determination

June 5, 2020

I’ve written a good bit about Thomas Piketty’s new book.  Click on the Capital and Ideology tag to read my previous posts about it.  In this post, I’m going to discuss his ideas on corporate governance.

Great corporations typically begin with an individual who has a vision—a Steve Jobs, a Walt Disney, a George Eastman, a Henry Ford, a Soichiro Honda or a Jack Ma.

The drive and creativity of the individuals make the companies what they are.  Over time, though, the companies devolve into authoritarian bureaucracies, little junior watered-down versions of the Soviet Union.

Click to enlarge.  Source: Oxford Law Faculty

The goal of reform would be how to prevent corporate abuse without stifling enterprise and beneficial innovation.  Piketty’s solution is to adopt German-Scandinavian co-determination, under which corporations of a certain size have to allow employees to choose a certain number of corporate directors.

In Germany, according to Piketty,  all firms with more than 2,000 employees must reserve half the seats on their oversight committees to worker representatives.  All firms with 500 to 1,999 employees must reserve a third of their oversight committee seats to worker representatives.  There also are factory committees with union representatives who have a say one work rules and training.

However, in Germany, the oversight committees only supervise day-to-day operations of companies.  Policy is set by directorates, on which workers have no representation.

Other countries reserve one-third of seats for workers on companies of a certain size.  In Sweden, the threshold is 35 employees; in Norway, 50 employees; in Austria, 500 employees.

In April 2018, according to Wikipedia, U.S. Senators Tammy Baldwin, Elizabeth Warren and Brian Schatz sponsored the Reward Work Act,  which would amend federal legislation to require all companies listed on national stock exchanges to have one-third board representation for workers.  Polls showed majority support among Americans for the measure.

In August 2018, Elizabeth Warren sponsored a new Accountable Capitalism Act that would require 40 percent of the board of directors be elected by employees in federal corporations with taxable incomes over $1 billion.

In Britain, the Bullock Report in 1977, during the Harold Wilson administration, called for co-determination in big businesses based on the formula 2x + y. In this, workers and stockholders would have equal representation on boards of directors, but there would be two government representatives to break a tie.  It never became reality.

In practice, even though workers have a voice, the final authority rests with the owners.  I think there still is a benefit to having worker representatives.

Employees usually know things about how companies operate that the top managers don’t.  This can be valuable in avoiding the Stupidity Paradox, in which layers of bureaucrats demand good news and truthful information doesn’t filter up.

It’s also good for employees, especially union representatives, to have access to the same information that top management has.  Of course all these desirable goals can be thwarted by a sufficiently cunning and authoritarian management.

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Thomas Piketty on equality through taxation

June 4, 2020

Thomas Piketty’s Capital and Ideology is the most comprehensive study I know about the causes of economic inequality.  He gathered a vast amount of data and made sense of it.  To read my comments on his research, click on this, this, this and this.

In the last chapter, he outlined proposals for a “participatory socialism” to make society less unequal.  He saw three main ways to do this: (1) taxation, (2) reform of corporate governance and (3) educational reform.  This post will be about taxation.  I will take up the other two later.

His plan is based on steeply graduated income taxes, inheritance taxes and new taxes on wealth.  These were to be used to finance a wealth endowment of 60 percent of average wealth to every citizen at age 25 and a guaranteed income of 60 percent of average income.

He does not make absolute equality his goal, but he would allow a much narrower band of inequality than exists today.

I’ve long been indignant at the growing extremes of inequality in my country and the abuses of power of the very rich.  Reading Piketty forces me to think about just how much equality I want and how much I would give up to attain it.

Piketty wrote in earlier chapters of Capital and Ideology about how higher taxes have often been the key to greater national power and wealth.

One of history’s mysteries is how it was that European nations could defeat great Asian empires, such as the Ottoman Empire, the Mughal Empire in India or the Manchu (Qing) Dynasty in China, when, prior to the Industrial Revolution, they were equal in wealth and technology to the European nations.  It was the Chinese, for example, who invented gunpowder.

Piketty’s answer is that the Europeans gained an advantage through a higher level of taxation.  Tax revenue across Europe and Asia prior to the modern era was roughly 1 to 2 percent of national income.  This gave a king or emperor enough revenue to reign, but not to exercise tight control over his realm.

This changed in Europe, during the wars of the 16th and 17th centuries, when military competition forced kings to increase their revenues to 8 to 10 percent of national income.

Click to enlarge

The greater revenue enabled kings to become absolute monarchs, exercising almost as much control over their citizens as a 20th century president or prime minister.  It also enabled them to put armies in the field that the Turks, Persians, Indians, Chinese and Japanese could not match.

Western governments’ revenue was bumped up again in the early 20th century, to 30 to 50 percent of national income.  This made possible the total wars of the early 20th century.  But it also gave governments enough money to pay for universal public education, old age pensions, public health and the other services of the welfare state.

This was only tolerable because the Western nations had grown rich enough that their people could give up a big fraction of their incomes to government and still enjoy a high material standard of living.

It would not have been possible in, say, France in the time of Louis XIV.  The taxes he levied to finance his wars reduced the peasantry to misery and, in some cases, starvation (because the nobles enjoyed most of the national income, but paid no taxes).

The same conditions may exist in poor African countries today.  But in rich Western countries, it is technologically and economically feasible to raise taxes revenues to 50 percent of national income, which is necessary for PIketty’s program.

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Piketty on the sacredness of property rights

May 27, 2020

When English settlers first dealt with American Indians, there was a fundamental misunderstanding of the nature of property rights.

The Indians had no idea of buying the exclusive right to use a tract of land, keep everybody else off it and sell the land to someone else.

Thomas Piketty pointed out in his new book, Capital and Ideology, that, in fact, this was a fairly new idea even for the English and other Europeans.

The idea of absolute property rights did not exist in the European middle ages. Someone might have a hereditary right to grow crops on a certain tract of land, a second person the right to 10 percent of all crops grown on the land, a third person the right to grind grain produced on the land for a fixed fee, and so on.

Furthermore the right to land use was not so much bought and sold as inherited.

Medieval France was what Piketty called a “ternary” society—a society in which political power and property ownership were divided between a hereditary noble class who “fought for all” and a priestly class who “prayed for all,” leaving very little for a lower class who “worked for all.”

The “ternary” system existed in the Islamic world, India and many other parts of the world, and it casts its shadow over the present world.  Saudi Arabia and the Gulf states (mostly Sunni) are ruled by hereditary monarchs while Iran (mostly Shiite) is ruled by clerics.  In India, the descendants of Brahmins (priests) and Kshatriyas (warriors) are richer and more influential than the Vaishyas (farmers, craftsmen and traders) and Shudras (laborers).

In Europe, uniquely, priests were celibate.  They could not found dynasties.  This mean that the Roman Catholic institutions had to be corporations.  They had to have a continuing existence that was independent of who was in charge.  It’s not accidental that business corporations originated in Europe.

The French Revolution overthrew hereditary property rights and established what Piketty called “proprietarianism” or “the ownership society”—the idea that property rights were sacred, provided that the property was acquired through legitimate purchase.

The accepted story in France is that the revolutionaries divided up the aristocrats’ estates among the peasants and turned France into a nation of small landowners.  In fact, according to Piketty, the revolutionaries made arbitrary distinctions between land that was owned through hereditary privilege and land acquired through voluntary contract, and, in many areas,  property ownership remained almost as concentrated as before.

Piketty wrote that the revolution was one of history’s “switch points.”  He thinks it could have been more radically egalitarian than it was.

In fact, concentration of wealth in France at the beginning of the 20th century was even greater than at the time of the French Revolution.

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Piketty’s new book on economic inequality

May 26, 2020

The French economist Thomas Piketty made a big splash with Capital in the 21st Century (published 2013, translated into English 2014).  He showed why, all other things being equal, the rich will get richer and the rest of us will get less.

In different countries in different historical periods, the rate of return on income-producing property exceeded the rate of economic growth.  This was true whether the income-producing property was real estate, government bonds, corporate stocks or something else.

What this meant was that, in the absence of revolution, war or something else that wiped out the value of their assets, the rich would get richer and everybody else would be left behind.

Piketty’s new book, CAPITAL AND IDEOLOGY  (published 2019, translated 2020), is more ambitious and complicated.  He thinks it is an even better book that its predecessor and I agree.  It is a great work.

He looked at all the forms that economic inequality has taken in the past few centuries and all the different ways that inequality has been rationalized.  While his earlier book was based mainly on data from France, Great Britain and the United States, the new book tries to be global in scope.

He said it is important to understand not only the forms of economic inequality, but the reasons why people accept them.

His book covers several kinds of “inequality regimes”:

  • “Ternary” societies in which most wealth is controlled by hereditary kings and aristocrats and an established church or religious institution.
  • “Ownership” societies in which property ownership is regarded as a sacred right, superseding everything else.
  • Slave and colonial societies.
  • “Social democratic” societies, which limit the rights of property owners.
  • The hyper-capitalism of today, which is a backlash against social democracy and Communism.

The degree of inequality in any nation or society is not the result of impersonal economic law, he wrote; it is the result of choices that could have been different.  History does not consist of class struggles; it consists of a struggle of ideas and a struggle for justice.

To understand inequality, he wrote, it is necessary to understand the reasons for choices at various “switch points” of history—the French Revolution, the British constitutional crisis of 1911, privatization in Russia after the fall of Communism.

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The irrelevance of old-time Keynesianism

May 12, 2020

John Maynard Keynes was one of the great economists of the 20th century,  Maybe he was the greatest.  He is the father of the idea of economic stimulus.

His insight was that, in a capitalist free-enterprise economy, economic growth depends on a growing mass consumer market, which depends on masses of the public having money in their pockets.

So when the economy stalls and people are out of work, the best way to stimulate the economy is to give the people more purchasing power.

J.M. Keynes

Once they started buying things, businesses would hire more people, and there would be a multiplier effect that spread through the entire economy.

The important thing, according to Keynes, was to get people back to work and earning money—no matter how.  He famously said that hiring workers to dig holes and fill them up again would be better than nothing.

In the pandemic lockdown, governments are doing exactly the opposite of what Keynes recommended.  The government is actively trying to prevent millions of Americans from going to work.  By staying at home, they help limit the spread of the virus.

Congress recently voted an economic bailout that was called a “stimulus” bill.   But economic stimulus was not, and is not, needed.  What is needed is an economic sedative, combined with an economic life support system.

We do not need employment for the sake of employment.  We need to have virtually necessary jobs get done, less necessary jobs put on hold and useless jobs not to be done at all.  We Americans as a nation have not yet figured out how to do this.

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The economic consequences of the lockdown (3)

May 9, 2020

The best thing I’ve read so far on this topic is an interview of Thomas Ferguson by Paul Jay.

They’re both interesting characters. Ferguson is a professor emeritus of political scientist and the best U.S. expert on money in politics.

Paul Jay

Paul Jay, along with Sharmini Perez, is a co-founder of The Real News Network, an alternative web-based news site.  Last summer they left or were ejected from the organization for reasons unknown to the public.  Jay has started a new podcast called theAnalysis.news.

In the interview, Ferguson made the point that, in the recent bailout, Congress chose to bail out big businesses with the expectation that this would enable them to hire laid-off and idled workers.

Instead, he said, most of the CEOs decided to keep the money and let working people fend for themselves.  Ferguson said it would have been far better to provide individual relief.  They would have spent money and helped to revive the economy when the lockdown ended.

Congress also should have provided aid to cash-strapped state, county and municipal governments, he said.  One economic effect of the lockdown has been to choke off tax revenue they need to provide essential services.  The federal government, unlike the states, has the power to create money and isn’t limited, as many states are, by constitutions requiring balanced budgets.

LINKS

Big Business Takes Cash As Workers Laid Off, States and Cities Go Bust, an interview of Thomas Ferguson by Paul Jay for theAnalysis.news.  A bit long, but comprehensive and highly recommended.

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The economic consequences of the lockdown (2)

May 8, 2020

Click to enlarge. Via Ian Welsh

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Click to enlarge. Via Calculated Risk

Looking at these numbers, I can understand why some U.S. governors are eager to end the lockdown and get people back to work.  But the economic system isn’t something you can turn on and off like an appliance.  The impact of business losses, wage losses and job losses won’t be wiped out by a re-opening,

There weren’t any good choices in dealing with the coronavirus pandemic, even if you decide to consider nothing except dollars and cents.  Sick, dying and scared people are bad for business, whether you have a government-ordered lockdown or not.

Also, the U.S. economy was fragile to begin with.  We U.S. citizens never fully recovered from the previous recession.  We were due for another one anyway.

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