Economics

Report from Festival for New Economic Thinking

Published by Anonymous (not verified) on Wed, 22/11/2017 - 2:09am in
On 19th-20th of October 2017, New School Economics (NSE) Goldsmiths members attended the first ‘Festival for New Economic Thinking’ in Edinburgh. This occasion brought together a range of ‘post-crash’ organizations that seek to rethink and embrace different perspectives in how economics is taught, studied and practiced. The festival offered lectures, workshops and film screenings, led by organizations such as Rethinking Economics and the Young Scholars Initiative. The focus was to provide an historical perspective on economic thinking and embed the economy on a more critical and deliberative ground.

NSE members predominantly draw from the Goldsmiths BA Politics, Philosophy and Economics degree which is itself a product of the post-crash movement, established in 2014 to broaden perspectives on what the economy is and who it serves. To this end, this course aims to study heterodox economic thinking by reflecting on the tradition of Marx, Schumpeter, Keynes, and Polanyi among others, who emphasize that capitalism is a dynamic and uncertain political-economic system. Within this framework, the study of the economy cannot be detached from the study of politics, ideas, and history. Thus the urgent need for a new interdisciplinary approach which includes anthropological, cultural, and sociological perspectives is paramount.

Indeed at the festival, Sheila Dow, Professor of Economics at Stirling University, reiterated to us the importance of other disciplines such as history and ethics in understanding the economy. In her remarks, she explained how the 18th century education of Adam Smith and his generation presumed a familiarity with ethics, and the study of economics was in fact treated as a practical way to discuss moral philosophy, rather than studying mathematical theory in isolation from its historical and ethical context.

This festival was particularly significant as it followed a number of political shocks including the outcome of the Brexit referendum, the election of Donald Trump in the United States, and a pervasive feeling of economic injustice across the world. There was a sense of urgency to rethink how we understand and conceptualize the economy in order to confront this growing political discontent and to devise a strategy for a new paradigm shift. In conjunction with this, at the festival we talked to Professor Michael Jacobs (left) and Laurie Laybourn-Langton who highlighted the failure of post-crash economic policy to adequately address the major issues facing developed economies. These failures range from missing anticipated rates of growth in the British economy, to the use of fiscal austerity measures to reduce the public deficit, and the stalling productivity and stagnation of wages despite the low rate of unemployment.

Underlying their report entitled ‘Moving Beyond Neoliberalism [pdf]’ is the idea that the neoliberal doctrine cannot be dislodged in the same manner that it was established. There is no single Keynesian or Hayekian figure to articulate a comprehensive alternative approach to understand the economy and public policy making, but instead multiple critiques of orthodox economic theories are needed. In the concluding recommendations of their report, Professor Jacobs and Laybourne-Langton argue for a new platform which aims to coordinate and accelerate efforts to move away from the neoliberal paradigm to an alternative, with a focus on communication and the development of an understanding to how new economic thinking groups can influence policy makers.

Another prominent critique of mainstream economic methods was delivered by Professor Steve Keen from Kingston University in his lecture entitled “Can we avoid another financial crisis?”. This provided a thought-provoking analysis of orthodox economics while warning of the inevitability of another crash. He argued that the mainstream’s derivation of macroeconomics from microeconomic foundations was key to understanding why crises were not predicted, as it led to a belief that financial markets tend towards a stable equilibrium, therefore crises could only emerge as a result of exogenous shocks. In his view, informed by Hyman Minsky’s financial instability hypothesis, financial crises are endogenous, and you can derive macro from macro; that is to say, empirical relationships found in the macroeconomy can form the basis for macroeconomic theory. Crucially, he asserted that private debt is the primary factor in sparking crises, and that when an economy with high private debt encounters a sudden cut in credit, a crisis will occur.

We conducted a brief interview with Professor Keen which you can view here:

One perspective of the crisis was shown in the 2012 documentary ‘When Bubbles Burst’, directed by Han Petter Moland, which was screened at the festival and introduced by economist Eric Reinert. It focused on the small Norwegian town of Vik, and how the crisis had devastating effects on their local economy, contextualising it within the history of technological revolutions and crises, differentiating 20th century financial innovations from previous cycles. The film manages to make the link between the abstract financial phenomenon of the crash, and the impact it had on communities in places like Vik. Scattered throughout the film are interviews with experts such as Joseph Stiglitz, former Goldman Sachs bankers, and venture capitalists, as well as the ordinary people who underwent terrible suffering due to the crisis. The film brought into sharp focus just how little has changed since the crash, with private debt on the rise, austerity pushing inequality towards dizzying new heights, and an emerging national discussion on the crisis of mental health.

Joe Earle, who co-authored the book ‘The Econocracy’, held a discussion entitled ‘Mental Health and Economics’, based upon the claim that these domains are inextricable, and that economics and psychology must communicate much more effectively. The discussion centred upon the aftermath of the 2007/08 financial crisis and the austerity policies which followed, citing how the slashing of expenditure on public services and increase in private debt has been met with questions around whether these factors are actually exacerbating mental health problems within the population. Participating in the discussion was Dr Ruth Cain, a senior lecturer in law at the University of Kent. Her research focuses on the impact of neoliberalism on mental health and well being. Cain’s concern is with current approaches to the measurement and treatment of mental health through happiness indices and mobile phone applications, how these are used in health care, and the way in which profit is extracted from this process. One part of Cain’s research examines the introduction of CBT (Cognitive Behavioural Therapy) by past governments, how it persists as something that is meant to preserve well-being in the population, and why it retained funding when other mental health funding was cut. She questioned the value attributed to this particular form of therapy, where it is thought that changes in the individual’s behaviour can improve and ‘fix’ their mental health, despite exogenous political and societal pressures.

Philip Mirowski, historian and philosopher of economic thought at the University of Notre Dame, delivered a comprehensive set of three lectures entitled Epistemological Breakdowns: Information Economics and Fake News. Mirowski posits several hypotheses about neoliberal epistemology, and why it has ultimately led to a post-truth world. He states that in this epistemology: individuals are always undependable agents; the market is the greatest information processor we have, and is thus the sole validator of truth; the problem is to get people to use their ‘freedom’ to subordinate themselves to the market; and that this doctrine hives liberty from autonomy. Ultimately, he states that people cannot be told these truths – so truth becomes unmoored from argumentation. With the shift from physical production, digital platforms have led data to become today’s ‘Big Business’ model through its monitoring, expropriation, storage, and retailing.

Fake news, for Mirowski, entails undermining people’s perception of the world so that they never really know what is happening, and that this befuddlement is used as a political strategy. Additionally, with the huge shift in how people gain their news and knowledge – for example through Facebook – news can be fabricated, making huge and sustainable profits for the platform capitalists who benefit from both the advertisements and the data-creating clicks of users. When, as well as this, both the creation of news and advertisements, and even the agents, can be automated through bots, the whole ecology of fake news becomes an automated system through which the platforms can endlessly harvest profit. Mirowski believes that this is the apotheosis of the neoliberal epistemology centering on the market as the ultimate information processor, and that this nexus of incoherence is destroying democracy, and that the only way to stop this process would be to halt the money-making mechanisms of platforms capitalists. He emphasised that the left must build a rival logic of markets, and of people within them, to put up any kind of fight to neoliberalism, and that those engaged in rethinking economics must put this at the centre of their project.

The festival provided NSE members with the chance not only to hear from leading academics, but to associate with other like-minded students engaged with the movement to broaden economic thinking. Communication is therefore a vital element, as economics has been perceived and portrayed as an isolated field dominated by experts, resulting in a public attitude demonstrated in a poll conducted by YouGov in 2016, which states how only 12% of respondents agreed that “politicians and the media talk about economics in a way that is accessible and easy to understand”. Rethinking Economics’ sister organisation Ecnmy.org campaign to demystify the complex phrases and concepts to engage a wider audience, thus attempting to encourage more informed democratic participation in reforming the economy. Therefore an important component of promoting new economic thinking is to train rethinkers to present ideas in a more concise, accessible and engaging manner. At the festival Laurie Laybourn-Langton, in his spokesperson training workshop, provided a set of effective tools that enable rethinkers to get their key points across while communicating on various media platforms. Such workshops are an important step for the Rethinking movement in promoting new economic thinking and wider participation to consult on, and criticise economic decision making.

The post Report from Festival for New Economic Thinking appeared first on Political Economy Research Centre.

Workers’ Chamber Book: Chapter Breakdown

As I mentioned in my last post, a year or so ago I wrote a pamphlet, about 22,000 words long, arguing that as parliament was filled with the extremely rich, who passed legislation solely to benefit the wealthy like themselves and the owners and management of business, parliament should have an elected chamber occupied by working people, elected by working people. So far, and perhaps unsurprisingly, I haven’t found a publisher for it. I put up a brief overview of the book’s contents in my last post. And here’s a chapter by chapter breakdown, so you can see for yourselves what it’s about and some of the arguments involved.

For a Workers’ Parliamentary Chamber

This is an introduction, briefly outlining the purpose of the book, discussing the current domination of parliament by powerful corporate interests, and the working class movements that have attempted to replacement parliamentary democracy with governmental or administrative organs set up by the workers themselves to represent them.

Parliamentary Democracy and Its Drawbacks

This discusses the origins of modern, representative parliamentary democracy in the writings of John Locke, showing how it was tied up with property rights to the exclusion of working people and women. It also discusses the Marxist view of the state as in the instrument of class rule and the demands of working people for the vote. Marx, Engels, Ferdinand Lassalle and Karl Kautsky also supported democracy and free speech as a way of politicising and transferring power to the working class. It also shows how parliament is now dominated by big business. These have sent their company directors to parliament since the Second World War, and the number has massively expanded since the election of Margaret Thatcher. Universal suffrage on its own has not brought the working class to power.

Alternative Working Class Political Assemblies

This describes the alternative forms of government that working people and trade unionists have advocated to work for them in place of a parliamentary system that excludes them. This includes the Trades Parliament advocated by Owen’s Grand Consolidated Trade Union, the Chartists’ ‘Convention of the Industrious Classes’, the Russian soviets and their counterparts in Germany and Austria during the council revolution, the emergence and spread of Anarcho-Syndicalism, and its aims, as described by Rudolf Rocker.

Guild Socialism in Britain

This describes the spread of Syndicalist ideas in Britain, and the influence of American Syndicalist movements, such as the I.W.W. It then discusses the formation and political and social theories of Guild Socialism, put forward by Arthur Penty, S.G. Hobson and G.D.H. Cole. This was a British version of Syndicalism, which also included elements of state socialism and the co-operative movement. This chapter also discusses Cole’s critique of capitalist, representative democracy in his Guild Socialism Restated.

Saint-Simon, Fascism and the Corporative State

This traces the origins and development of these two systems of government. Saint-Simon was a French nobleman, who wished to replace the nascent French parliamentary system of the early 19th century with an assembly consisting of three chambers. These would be composed of leading scientists, artists and writers, and industrialists, who would cooperate to administer the state through economic planning and a programme of public works.

The Fascist Corporative State

This describes the development of the Fascist corporative state under Mussolini. This had its origins in the ideas of radical nationalist Syndicalists, such as Michele Bianchi, Livio Ciardi and Edmondo Rossoni, and the Nationalists under Alfredo Rocco. It was also influenced by Alceste De Ambris’ constitution for D’Annunzio’s short-lived regime in Fiume. It traces the process by which the Fascists established the new system, in which the parliamentary state was gradually replaced by government by the corporations, industrial organisations which included both the Fascist trade unions and the employers’ associations, and which culminated in the creation of Mussolini’s Chamber of Fasci and Corporations. It shows how this was used to crush the working class and suppress autonomous trade union activism in favour of the interests of the corporations and the state. The system was a failure, designed to give a veneer of ideological respectability to Mussolini’s personal dictatorship, and the system was criticised by the radical Fascists Sergio Panunzio and Angelo Olivetti, though they continued to support this brutal dictatorship.

Non-Fascist Corporativism

This discusses the way the British state also tried to include representatives of the trade unions and the employers in government, economic planning and industrial policies, and suppress strikes and industrial unrest from Lloyd George’s administration during the First World War. This included the establishment of the Whitley Councils and industrial courts. From 1929 onwards the government also embarked on a policy of industrial diplomacy, the system of industrial control set up by Ernest Bevin during the Second World War under Defence Regulation 58a. It also discusses the corporative policies pursued by successive British governments from 1959 to Mrs Thatcher’s election victory in 1979. During these two decades, governments pursued a policy of economic planning administered through the National Economic Development Council and a prices and incomes policy. This system became increasingly authoritarian as governments attempted to curtail industrial militancy and strike action. The Social Contract, the policy of co-operation between the Labour government and the trade unions, finally collapsed in 1979 during the ‘Winter of Discontent’.

Workers’ Control and Producers’ Chambers in Communist Yugoslavia

This discusses the system of industrial democracy, and workers councils in Communist Yugoslavia. This included a bicameral constitution for local councils. These consisted of a chamber elected by universal suffrage, and a producers’ chamber elected by the works’ councils.

Partial Nationalisation to End Corporate Influence in Parliament

This suggests that the undue influence on parliament of private corporations could be countered, if only partly, if the policy recommended by Italian liberisti before the establishment of the Fascist dictatorship. Those firms which acts as organs of government through welfare contracts, outsourcing or private healthcare contractors should be partially nationalised, as the liberisti believed should be done with the arms industries.

Drawbacks and Criticism

This discusses the criticisms of separate workers’ governmental organs, such as the Russian soviets, by Karl Kautsky. It shows how working class political interests have been undermined through a press dominated by the right. It also shows how some of the theorists of the Council Revolution in Germany, such as Kurt Eisner, saw workers’, peasants’ and soldiers’ councils as an extension of democracy, not a replacement. It also strongly and definitively rejects the corporative systems of Saint-Simon and Mussolini. This part of the book recommends that a workers’ chamber in parliament should be organised according to industry, following the example of the TUC and the GNC Trades’ Parliament. It should also include representatives of the unemployed and disabled, groups that are increasingly disenfranchised and vilified by the Conservatives and right-wing press. Members should be delegates, in order to prevent the emergence of a distinct governing class. It also shows how the working class members of such a chamber would have more interest in expanding and promoting industry, than the elite business people pursuing their own interests in neoliberal economics. It also recommends that the chamber should not be composed of a single party. Additionally, a workers’ chamber may in time form part of a system of workers’ representation in industry, similar to the Yugoslav system. The chapter concludes that while the need for such a chamber may be removed by a genuine working class Labour party, this has been seriously weakened by Tony Blair’s turn to the right and partial abandonment of working class interests. Establishing a chamber to represent Britain’s working people will be immensely difficult, but it may be a valuable bulwark against the domination of parliament by the corporate elite.

I’m considering publishing it myself in some form or another, possibly through the print on demand publisher, Lulu. In the meantime, if anyone wants to read a sample chapter, just let me know by leaving a comment.

Hammond finds his answers in attacking his party’s supporters

Published by Anonymous (not verified) on Tue, 21/11/2017 - 6:35pm in

There are a lot of rumours floating that this is Philip Hammond’s last budget. This could be because May won’t make it for a lot longer. And it might also be because he seems to have even fewer friends than the average Tory MP right now, not least amongst fellow Tory MPs. But either way he seems intent onsealing his fate. The FT suggests this morning that he has two big measures in mind that will make George Osborne’s pasties and caravans look like hum-dinging successes.

The first is to extend the crackdown on the use of bogus contracting to the private sector. It’s already being applied to the public sector. Now Good Old Phil wants to tackle the Tory party’s natural supporters amongst the supposedly entrepreneurial who set up their own companies, work for a single large customer, and opt out of PAYE in the process.

You would expect me to support this. And in principle I do, but not the way Old Phil’s going to do it. I stress I use the term Old not just because Phil’s got a couple of years on me, but because he seems to have advanced by decades in his sixteen months in the Treasury. Some evidence of that is to be found in the fact that he thinks this problem is solved by simply ‘clamping down’ on it, albeit, and no doubt, with an enquiry at this stage. What he should, instead, be looking at is the hard question of why it arose and what real reform might address the issues that flexible working by many who do provide what do look rather like professional services might demand.

Thankfully for Phil I did that thinking, including some of the hard-ish background justification stuff, a decade ago. So if he announces an enquiry I’ll update a number or two and pop this 2007 report in the post to him. It was being taken pretty seriously, I have been told, in the Treasury in 2008, but then the banks fell off their perches the issue was laid aside for another day. And this is that day, when Phil wants to turn on his natural support by clamping down on them instead of by seeking to find a creative solution to the problem of contracting that ensures appropriate tax is paid that reflects the economic realities of what is happening in this sector, as I offered. There’s a summary of my proposal here.

But in case Phil’s worried that alienating another one of his audiences is not enough it sounds like he’s doubling his odds by announcing he’s also going to hold another enquiry, this time into reducing the VAT threshold dramatically, as proposed by the Office for Tax Simplification. This is, supposedly, a move to raise £2 billion of VAT that is not avoided as it is not due by bringing the UK into line with EU standards just as Brexit is on its supposed way. It will do this  by reducing the level of sales at which VAT registration is required from £85,000 a year to about £20,000 a year. In the process the price of many services will rise (Phil knows how to keep people happy); the incentive to evade might increase; and small business admin will go up, considerably. In one fell swoop Phil will alienate millions.

Is there an alternative? Of course there is: I explained it here. What Phil needs to do is crack down on those who don’t pay at all instead of making the already compliant pay more. And he can do this by finding the shadow companies that proliferate in the UK economy by securing automatic information exchnage of data on all the companies that UK banks supply services to in the UK, and then making sure that each and every one of them submits accounts and tax returns. It would not be hard. I’ve even written the legislation for him. And if he did this he could beat the cheats and stand up for all his honest business supporters. But he’d rather do the reverse.

No wonder Phil’s on his way out. He deserves to be be so at this rate.

DOJ Suing to Stop the AT&T/Time Warner Merger

Published by Anonymous (not verified) on Tue, 21/11/2017 - 5:59pm in

Perhaps Trump is doing this for petty reasons, but this is a good thing. Media is absurdly over-concentrated already, and should not be more so.

The only thing that would better would be a law straight up forbidding media companies to grow beyond a certain size, and forcefully breaking the firms back down to that size.

Of course, Trump’s administration doesn’t want that. The FCC is removing restrictions on ownership controls in local markets, for example.

Nonetheless, this is a good news, and we can hope that in time it will be seen to be the start of a new wave of anti-trust cases and law.  America, and the world, need few things more.

Saez and Zucman on the Republican Tax Plan

Published by Anonymous (not verified) on Tue, 21/11/2017 - 7:12am in

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Economics, Taxes

Emmanuel Saez & Gabriel Zucman:

Republican tax plan slams workers and job creators in favor of the rich and inherited wealth, by Emmanuel Saez & Gabriel Zucman: The tax plan released by Republicans in Congress and praised by President Donald Trump is a remarkable document in many ways, but most notably in that it achieves the opposite of its stated goal. Presented as a tax cut for workers and job-creating entrepreneurs, it is instead a giant tax cut for the rich and inherited wealth.

First,...

The Rise and Future of Progressive Redistribution

Published by Anonymous (not verified) on Tue, 21/11/2017 - 7:11am in

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Economics

Peter Lindert at VoxEU:

The rise and future of progressive redistribution, by Peter Lindert: What have governments done to shift national income towards the poor at the expense of those better off? The question deserves a global history, especially in the wake of the disturbing rise in inequality since the 1970s (Atkinson and Morelli 2014). This column’s steps towards a global history of government income redistribution yields the following findings:

  • Government budgets have shifted resources progressively, from the rich to the poor, within the last 100 years. The middle ranks are neither favoured nor disfavoured. Before WWI, very little was redistributed through government.
  • The shift toward progressivity has not been reversed, contrary to allegations of a rightward shift since the 1970s. Among democratic welfare states, the closest thing to a demonstrable reversal was Sweden’s partial retreat since the 1980s. Globally, the most dramatic swing has been Chile’s record-setting return towards progressivity after the regressivity under Pinochet.
  • As a corollary, the rise in inequality since the 1970s owes nothing to a net shift in government redistribution toward the rich, despite the lowering of top tax rates.
  • Since the late 1970s, several governments have shown a mission drift away from investing in lower-income children and working-age adults, while concentrating social insurance on the elderly. Japan, the US, and some Mediterranean countries have missed an opportunity for pro-growth income-levelling.

What triggers the new history is the 2016-2017 blossoming of research programmes on fiscal incidence by income class, led by Bengtsson et al. (2016), the Commitment to Equity (CEQ) project (Lustig 2017), the OECD (2011, 2016, forthcoming), and the Distributional National Accounting (DINA) project (Piketty et al. 2016). After combining and extending these, I have added century-long histories for Britain and South American countries (Lindert 2017).

The recent research on government redistribution has concentrated on the 21st century. Combining the latest snapshots from the CEQ and OECD projects yields the group photo of 53 countries around 2013 shown in Figure 1.1 The progressivity of government fiscal redistribution is measured by the gap between the Gini coefficient of inequality in market, or ‘pre-fisc’, income and the Gini coefficient for final, or ‘post-fisc’, income. That gap shows up in Figure 1 as the distance between the 45-degree line and the country’s dot. That gap is smallest for Mexico, and largest for Ireland.

Figure 1 Income inequality and progressivity in 53 countries, c2013

Vox1

All 53 data-supplying governments redistribute progressively today, placing their dots below the 45-degree line. Probably many other countries do as well, though there may be some who silently redistribute regressively, from households at the bottom to those at the top (North Korea, maybe?). Regions differ. Most Latin American governments do little to offset their countries’ high inequality of market incomes, with Argentina being the clearest exception. In East Asia, Japan and South Korea also do little to redistribute income from rich to poor, but they have much less inequality of market incomes in the first place.

Widespread progressivity is less than 110 years old. Back in 1910, redistribution hardly favoured the poor at all. No country had sizeable direct taxes or transfers, as implied by Figure 2. To underscore how little was given in any country, consider a clear overestimate. Suppose that all direct taxes came from the very top income ranks (untrue), and that all social transfers were given over to the very bottom income ranks (also untrue). The most that could have been transferred from top to bottom is the lesser of these two shares of GDP. In 1910, that was only 2.7% for Britain, and less than 1.5% for every other country. Compare this with today’s (c2013) Gini coefficients. Of the 53 countries in today’s group photo, only Mexico, Turkey, and Korea redistribute as little from rich to poor as did Britain, the progressive leader back in 1910.

Figure 2 Changes in fiscal progressivity since c1910

Vox2

There have been some retreats from progressivity along the way, but in most cases the lost ground has been regained since. Chile’s famous shift to regressivity after 1973 has been dramatically reversed since the return of democracy after 1989. The Thatcher-Reagan revolutions were also limited and temporary. As suggested by Figure 2, neither of them erased the whole century-long rise of progressivity, and both have since been completely offset by the return of the gradual trend toward progressivity. Among democracies, Sweden is the one clearly quantified case of a country with an enduring retreat from progressivity.[2] Back in 1983, its taxes and transfers shifted enough resources to reduce inequality by 20.5 Gini percentage points. By 2009, this redistribution had retreated to 12.3 percentage points, and no upturn of progressivity is in sight, even though the 2009 redistribution from richer toward poorer still exceeds any achieved by Sweden since the 1970s or earlier. Interestingly, the US has continued to creep toward progressivity, helped by the rising importance of workers’ Earned Income Tax Credit and the increasing use of food stamps.

For other countries, do the latest trends point toward more redistribution or toward less? The results since the 1980s suggest stability and convergence in governments’ redistribution. On the one hand, no global renewal of the 20th century’s global rise of progressivity is foreseeable. The forces that have ushered in that century of redistribution – the rise of average incomes above subsistence, the improvement of governments’ ability to tax, and the spread of political voice for the masses – have reached their foreseeable limits, at least for the rich industrialised democracies. On the other hand, there is also reason to doubt that there has been any widespread retreat toward governments’ redistributing incomes from poor to rich. The OECD’s estimates for about a dozen countries from the mid-1980s to about 2013 show no net change in redistribution, once one has adjusted for cyclical effects.[3]

The lack of any clear retreat to regressivity since the 1970s or 1980s implies an important corollary for the debate over the disturbing rise of overall inequality in this same era. None of this rise is due to a net shift of government budgets towards helping the rich at the expense of the poor. The entire net rise of inequality must have been due to changes in the market economy, such as technological bias, globalisation, and/or trends in human capital.

Scanning the horizon for possible regressive influences on government behaviour in the near future, one should fix one’s gaze in the direction of the treatment of age groups. Since the 1970s, a few countries have exhibited mission drift in their social spending policies, under-investing in lower-income children and those of working age, and relatively overprotecting the elderly. While every country has dramatically reduced poverty among the elderly, Japan, the US, Portugal, and Greece have been particularly remiss in raising the income floor for younger age groups.

Authors’ note: Based on the Fifth Angus Maddison Development Lecture, OECD, 3 October 2017. The Working-paper version is Lindert (2017). The author thanks Orsetta Causa, Marc Fleurbaey, Mikkel Hermansen, Kathy Lindert, Nora Lustig, Eugene Smolensky, Daniel Waldenström, and Jeffrey Williamson for helpful comments on earlier drafts.

References

Atkinson, T and S Morelli (2014), “The chartbook of economic inequality”, VoxEU.org, 26 March.

Bengtsson, N, B Holmlund and D Waldenström (2016), “Lifetime versus Annual Tax Progressivity: Sweden, 1968–2009”, Scandinavian Journal of Economics 118(4): 619-45.

Lindert, P H (2017), “The Rise and Future of Progressive Redistribution”, Commitment to Equity (CEQ) Institute Working Paper 73, Tulane University.

Lustig, N (2017), “Fiscal Policy, Income Redistribution and Poverty Reduction in Low and Middle Income Countries”, CEQ Working Paper No. 54.

OECD (2011), Divided We Stand: Why Inequality Keeps Rising. Paris: OECD Publishing, Chapter 7.

OECD (2016), Downloadable update of the OECD Income Distribution Database.

OECD (forthcoming), Income Redistribution through Taxes and Transfers across OECD Countries. Paris: OECD Publishing. ECO/CPE/WP1 (2017) 21.

Piketty, T, E Saez, and G Zucman (2016), “Distributional National Accounts: Methods and Estimates for the United States”, NBER Working Paper No. 22945 (including its links to online appendices)..

Endnotes

[1] The two sources have used different measures. For the usual OECD countries, the OECD (2017 and earlier studies cited therein) omitted transfers in kind such as public education and public health, and restricted its estimates to the population of working age. The CEQ, by contrast, included in-kind transfers and the elderly in its measures for Latin America, Asia, the Middle East, and South Africa. The difference in perspectives should not have affected the estimates of net redistribution enough to change any qualitative conclusions here.

[2] This statement sets aside the countries where communist regimes have broken up. Presumably many of them experienced regressive shifts in income redistribution in the process, though these are hard to quantify.

[3] OECD (2011, 2016, forthcoming). The forthcoming OECD study will disagree with my interpretation of their data. Yet the seeming decline stems from some biases in presentation. Their study has chosen to set aside the rise in progressivity that their data showed from the mid-1980s to the mid-1990s, instead emphasising a decline in progressivity from the mid-1990s to about 2013. Furthermore, at their chosen starting point in the mid-1990s, the Nordic countries showed high progressivity simply because they were in crisis at the time. The longer comparison of the 1980s and the 2010s is more cyclically neutral, and shows no clear trend.

If you tax the rich they don’t move: they just pay

Published by Anonymous (not verified) on Tue, 21/11/2017 - 12:14am in

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Economics

One of the classic claims of the wealthy, and their friends on both the political right and in the tax abuse industry, is that if the rich are taxed then they up and leave a place. Except now we know that is not true. A new study by Cristobal Young shows that. The publicity for his new book says:

In this age of globalization, many countries and U.S. states are worried about the tax flight of the rich. As income inequality grows and U.S. states consider raising taxes on their wealthiest residents, there is a palpable concern that these high rollers will board their private jets and fly away, taking their wealth with them. Many assume that the importance of location to a person’s success is at an all-time low. Cristobal Young, however, makes the surprising argument that location is very important to the world’s richest people. Frequently, he says, place has a great deal to do with how they make their millions.

In The Myth of Millionaire Tax Flight, Young examines a trove of data on millionaires and billionaires—confidential tax returns, Forbes lists, and census records—and distills down surprising insights. While economic elites have the resources and capacity to flee high-tax places, their actual migration is surprisingly limited. For the rich, ongoing economic potential is tied to the place where they become successful—often where they are powerful insiders—and that success ultimately diminishes both the incentive and desire to migrate.

This important book debunks a powerful idea that has driven fiscal policy for years, and in doing so it clears the way for a new era. Millionaire taxes, Young argues, could give states the funds to pay for infrastructure, education, and other social programs to attract a group of people who are much more mobile—the younger generation.

And today he has written in the Guardian, saying:

To better understand elite migration across state lines, I analysed tax return data from every million-dollar income-earner in the United States. The dataset includes 3.7 million top-earning individuals, who collectively filed more than 45 million tax returns over more than a dozen years – showing where millionaires live and where they move to.

And it turns out that place still matters for the rich – much more so than we might think.

Only about 2.4% of US-based millionaires change their state of residence in a given year. Interstate migration is actually more common among the US middle class, and almost twice as common among its poorest residents, who have an annual interstate migration rate of 4.5%.

This is, of course, what we could expect. It’s easy to move when you have very little, or when you’re young. It gets harder the older you get. And incidentally, as he finds, when people do move then it’s to the sun, and not for low tax. Again, there’s nothing new in that.

But what does that mean? It means we can tax wealth because the rich stay put.

And we can have progressive taxation.

The arguments over: the facts are what matters. Now let’s get on with it.

DSGE models are missing the point

Published by Anonymous (not verified) on Mon, 20/11/2017 - 11:41pm in

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Economics

In a recent attempt to defend DSGE modelling, Lawrence Christiano, Martin Eichenbaum and Mathias Trabandt have to admit that DSGE models have failed to predict financial crises. The reason they put forward for this is that the models did not “integrate the shadow banking system into their analysis.” That certainly is true — but the DSGE […]

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