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The Eighth Way to Think Like a 21st-Century Economist

Published by Anonymous (not verified) on Sat, 23/02/2019 - 2:16am in



The teams at Rethinking Economics and Doughnut Economics have launched a contest for entries, asking “What’s the 8th Way to Think Like a 21st Century Economist?” It builds on Kate Raworth’s seven ways, here.

Here’s my entry:

8. Widespread prosperity both causes and is greater prosperity: From false tradeoffs to collective well-being.

“Okun’s Tradeoff” — the idea that inequality is necessary for economic prosperity and growth — is baked into 20th-century economic thinking. It probably carries some significant truth in a generally egalitarian economy. But in the 21st century, with wealth and income concentrations beyond even what we saw in the 1920s, with that era’s disastrous denouement, it just doesn’t hold water.

Today’s extreme concentrations cause us all, collectively — especially our children — to have less. (Excepting those few who are lucky enough to extract, hoard, and benefit from multigenerational dynastic wealth along the way.)

Broadly dispersed wealth and income offer up opportunity, prosperity, economic security, well-being, and a springboard for success to hundreds of millions, billions of people and families. And it uses less of our earth’s limited resources in distorted production markets delivering low-value, absurdly priced luxury goods and services demanded by those with astronomical wealth and income. With the same amount of wealth, broadly dispersed — and the increased spending that broader prosperity delivers (spending on higher-value goods) — we can enjoy a vastly better life for ourselves. And we can deliver likewise to those who come after us.

At least today, the equality-vs-growth tradeoff is wrong by 180 degrees. The choice is not a difficult one. In fact it’s not even a choice we have to make. Widespread prosperity both causes and is greater prosperity.

Related posts:

  1. Taxes: Equity versus Efficiency? Not so Much
  2. Want to Spread the Power? Spread the Wealth.
  3. Inequality is Necessary for Growth, Right?
  4. Bill Gates Agrees with Me on Piketty
  5. Are Low-Taxing States More Prosperous? No. QTC.

Modern Monetary Theory Is Not a Recipe for Doom

Published by Anonymous (not verified) on Fri, 22/02/2019 - 1:48am in



Paul Krugman first wrote about modern monetary theory on March 25, 2011. He last wrote about MMT in a two-part series on February 1213, 2019. Although he’s had almost a decade to come to terms with the approach, he is still getting some of the basic ideas wrong.

This matters for two reasons: one, because people listen to Paul Krugman, who won the Nobel economics prize in 2008, and, two, because the approach he is discussing is at the heart of how to design economic policies that affect millions of Americans. I’d like to try to move the conversation forward by addressing his concerns.

He begins by saying, “MMT seems to be pretty much the same thing as Abba Lerner’s ‘functional finance’ doctrine from 1943.” Krugman then sets out to critique Lerner’s functional finance, which he says “applies to MMT as well.”

It’s actually not correct to say that modern monetary theory is pretty much the same thing as Lerner’s functional finance. MMT draws insights and inspiration from Lerner’s work — including his “Money as a Creature of the State” — but the American academics who are most associated with MMT would argue that the contributions of Hyman Minsky and Wynne Godley are at least as important to the project, and probably more so. So, a critique of functional finance is not a critique of MMT but a critique of one component part of the broader macro approach.

But let’s go ahead and examine what Krugman thinks MMT — er, Abba Lerner — gets wrong. For those who aren’t familiar with Lerner’s approach, here’s the thumbnail version: The government should use its fiscal powers (spending, taxing and borrowing) in whatever manner best enables it to maintain full employment and price stability. Basically, he’s saying Congress, not the Federal Reserve, should have the dual mandate.

Lerner abhorred the doctrine of “sound finance,” which held that deficits should be avoided, instead urging policymakers to focus on delivering a balanced economy rather than a balanced budget. That might require persistent deficits, but it might also require a balanced budget or even budget surpluses.

It all depends how close the private sector comes to delivering full employment on its own. In any case, the government should focus on inflation and not worry about deficits or debt, per se.

Krugman says there are two problems with Lerner’s thinking and, by extension, MMT. “First, Lerner neglected the tradeoff between monetary and fiscal policy.”

Specifically, Krugman complains that Lerner was too “cavalier” in his discussion of monetary policy since he called for the interest rate to be set at the level that produces “the most desirable level of investment” without saying exactly what that rate should be.

It’s an odd critique, since Krugman himself subscribes to the idea that monetary policy should target an invisible “neutral rate,” a so-called r-star that exists when the economy is neither depressed nor overheating. For what it’s worth, research suggests the neutral rate “may be flat-out wrong,” and Fed Chairman Jerome Powell has admitted that the Fed has been too cavalier in relying “on variables that cannot be measured directly and which can only be estimated with great uncertainty.”

But Lerner wasn’t trying to use interest rates to optimize the economy. That was a job for fiscal policy. He argued that the government should be prepared to spend whatever is necessary to sustain full employment without raising taxes or borrowing.

Unless it risked creating an inflation problem, Lerner wanted the government to cut taxes or spend newly issued money and just leave it in the economy. But he also understood that this could cause interest rates to “be reduced too low…and induce too much investment, thus bringing about inflation.”

For that reason, Lerner suggested that the government might want to sell bonds in order to mop up excess money (reserves) to the point that the short-term interest rate rose enough to prevent excessive investment. Otherwise, the low interest rates brought about by rising deficits might “crowd in” more investment spending and overheat the economy. In other words, Lerner had a completely different way of thinking about the relationship between deficits, interest rates and the purpose of ‘borrowing.’

He was worried about the potential crowding-in effects of fiscal policy, not the crowding-out effects Krugman believes are part of an inherent tension—tradeoff—between fiscal and monetary policy. Lerner understood that deficits could drive interest rates down and spur too much investment, thus his support of bond sales to maintain higher interest rates. In this way, borrowing was not about financing deficits but hitting some desired interest rate. MMT agrees and makes the same point.

Krugman’s other objection is that Lerner “didn’t fully address the limitations, both technical and political, on tax hikes/or spending cuts” as a means of fighting inflation.

In fact, Lerner actually had quite a lot to say about this. Here’s the opening sentence to an entire chapter on the subject in his 1951 book “The Economics of Employment”: “We have now concluded our treatment of the economics of employment, but a word or two must be added on the politicsand the administration of employment policies in general and of Functional Finance in particular” (emphasis in original).

Continue Reading on Bloomberg.com

The post Modern Monetary Theory Is Not a Recipe for Doom appeared first on Stephanie Kelton.

The Wealthy Are Victims of Their Own Propaganda

Published by Anonymous (not verified) on Sat, 02/02/2019 - 6:25am in



A friend sent me an email the other day, complaining about the 70 percent marginal tax rate floated by Democratic Representative Alexandria Ocasio-Cortez and the new wealth tax proposed by Democratic Senator Elizabeth Warren.

Ocasio-Cortez first mentioned the 70 percent rate in response to a question from CNN’s Anderson Cooper about how she proposes to pay for programs like a Green New Deal that could cost trillions of dollars. Higher tax rates, she suggested, might be one part of the answer.

Then Warren released a video explaining that her “ultra-millionaire tax” could raise nearly $3 trillion over 10 years, money that she says could be used to pay for programs like universal child care, a Green New Deal and student-debt forgiveness.

Oh, I forgot to mention, my friend is wealthy enough to get hit by both. 

I’ve argued elsewhere that we can pay for a Green New Dealand that the obsession with finding a dollar of new “revenue” to offset every new dollar of spending is the wrong way to approach the federal budgeting process. My views belong to the macroeconomic school of thought known as Modern Monetary Theory — MMT, for short. 

I’ve debated those views here at Bloomberg Opinion, and they are beginning to gain a foothold in policy circles. But there is a long a way to go before politicians and the journalists who interview them stop demanding a road map to the source of funding for every new spending proposal.

My wealthy friend doesn’t want to pay for your child care. He doesn’t want to help pay off your student loans. And he sure as heck doesn’t want to shell out the big bucks for a multi-trillion-dollar Green New Deal.

So where does that leave Democrats, who insist that they need the rich to pay for their progressive agenda? Here’s what I told him.

“I am with the Democrats. I want to see us build a cleaner, safer, more prosperous world. I agree with billionaire hedge-fund manager Ray Dalio, who argues that inequality has become so extreme that it should be declared a “national emergency” and dealt with by presidential action.

“And I worry very much that it may prove impossible to raise taxes on the ultra-wealthy (who have enormous political power). Then what? The planet burns, our third-world infrastructure falls into total disrepair, and our society becomes ever more bifurcated until the tensions reach a boiling point and…. The pitchforks are coming.

“The problem is that every politician is confronted with the question, “How are you going to pay for it?” What these journalists are really asking is, ‘Who’s going to pay for it?’

“The question is designed to stop any meaningful policy debate by dividing us up, and get us fighting over where the money is going to come from. Since none of the headline politicians has really figured out how to respond — by explaining that when Congress approves a budget, the Treasury Department instructs the Federal Reserve to credit a seller’s bank account — they all end up trying to answer it by pointing to some new revenue source.

Continue Reading on Bloomberg.com

The post The Wealthy Are Victims of Their Own Propaganda appeared first on Stephanie Kelton.

Safe Assets, Collateral, and Portfolio Preferences

Published by Anonymous (not verified) on Wed, 30/01/2019 - 4:30am in



Matthew Klein and Mayank Seksaria had an interesting Twitter conversation yesterday in response to a Stephanie Kelton tweet. Read it here.

Here’s my understanding of the financial mechanisms they’re talking about.

Government deficit spending deposits fixed-price securities (“money,” checking and money-market holdings) ab nihilo onto private sector balance sheets. These are perfectly “safe assets” in the sense that you always know what they’re worth relative to the unit of account (The Dollar). A $1 checking-account balance is always worth one dollar — if the holding account contains less than the FDIC-insured maximum. But for big finance players with big cash balances, they’re not as safe as…

Treasury bills/bonds. And since Treasury is required to “sop up,” re-absorb, burn those newly-created cash balances by swapping them for bonds (“borrowing”): deficit spending + bond issuance, consolidated, effectively deposits new Treasuries, ab nihilo, onto private-sector balance sheets.

Now to the portfolio effects, which are driven by the market’s portfolio preferences (a broader and IMO more aptly descriptive term than “liquidity preferences”).

If deficit spending delivers cash onto private-sector balance sheets, the market is overweight cash. (Assuming portfolio preferences are unchanged.) It can’t get rid of cash because cash is (by its very definition) fixed-price. There’s a fixed stock, unaffected by capital gains and losses. (Yes, net bank lending changes this stock, but very slowly.)

So to adjust their portfolios, market players bid up variable-priced assets: mainly bonds, equities, and titles to real estate. Voila, cap gains: there are more total assets, and portfolio preferences are achieved.

But wait: deficit spending + bond issuance, consolidated, doesn’t make the market overweight cash. It’s overweight bonds. Portfolio balancing is more complicated here, because bonds have variable prices (though they’re less variable than equities).

The market could just sell bonds, driving down their prices and reducing total assets, to achieve its portfolio preference — less bonds, same amount of cash and equities. Or it could sell less bonds but also bid up equities to hit its portfolio prefs; the first reduces total assets, while the second increases that measure. (As they say, further research is needed.)

But none of this, in my opinion, has a whole lot to do with the value of “safe assets” as “collateral” (except when asset prices are diving and all correlations go to one). That seems peripheral and secondary to me, a hamster-wheel of financial shenanigans, sound and fury signifying…

Another takeaway from this: Government deficit spending & bond issuance delivers new assets (Treasuries) onto private-sector balance sheets. But no new liabilities. So it creates more net worth.

But the portfolio balancing that ensues generally also drives up equity (and real-estate) prices, yielding a deficit-spending multiplier effect on wealth by driving cap gains that wouldn’t happen otherwise. One dollar of deficit spending/bond issuance results in more than one dollar in new private-sector wealth, assets, net worth.

That’s how I see it…

Related posts:

  1. The Market Doesn’t Think the Fed Will Ever Sell Those Bonds Back
  2. Actually, Only Banks Print Money
  3. MMT and the Wealth of Nations, Revisited
  4. The Giant Logical Hole in Monetarist Thinking: So-Called “Spending”
  5. Why Unwinding QE Won’t Matter

Why the “Money Supply” Is Conceptually Incoherent

Published by Anonymous (not verified) on Sat, 29/12/2018 - 6:04am in



Economists’/monetarists’ use of the term Money “Supply” reveals multiple levels of deep confusion.

1. Supply implies a flow. But they’re clearly referring to a “stock” of money: what’s tallied in monetary aggregates.

2. Even if you’re think of a stock of money: Supply is not a quantity, an amount, a numeric measure. It’s a psychological/behavioral concept — willingness to produce and sell — commonly depicted in a curve representing that willingness at different price points. (All economics is behavioral economics.)

But “supply” is necessary to validate the incoherent ideas of the “price of” and “demand for” money — a set of financial instruments like checking deposits whose price never changes (relative to the Unit of Account). That price can’t change — by definition, by construction, and by institutional fiat.

Likewise, the aggregate stock or so-called “supply” of fixed-price instruments, money, changes only very slowly via bank net new lending. (That change in lending is determined by myriad economic behaviors and effects.)

If so-called demand for money can’t change the (P)rice of money (it can’t), or the collective (Q)uantity of money outstanding (it can but not much and very slowly), what exactly are we talking about here in our imagined supply-and-demand diagram toy thought-experiment?

Related posts:

  1. Lending, Velocity, and Aggregate Demand
  2. Specifying “Demand”: Nick Rowe Meets Steve Keen on His Own Ground
  3. What’s “Scarce” These Days? Borrowers, Spenders, and (Hence) Profitable Investments
  4. Actually, Only Banks Print Money
  5. “Supply” and “Demand” for Financial Assets

Actually, Only Banks Print Money

Published by Anonymous (not verified) on Thu, 13/12/2018 - 5:34am in



I’m thinking this headline will raise some eyebrows in the MMT community. But it’s not really so radical. It’s just using the word money very carefully, as defined here.

Starting with the big picture: 

You can compare the magnitude of these asset-creation mechanisms here. (Hint: cap gains rule.)

The key concept: “money” here just means a particular type of financial instrument, balance-sheet asset: one whose price is institutionally pegged to the unit of account (The Dollar, eg). The price of a dollar bill or a checking/money-market one-dollar balance is always…one dollar. This class of instruments is what’s tallied up in monetary aggregates.

A key tenet of MMT, loosely stated, is that government deficit spending creates money. And that’s true; it delivers assets ab nihilo onto private-sector balance sheets, and those new assets are checking deposits — “money” as defined here.

But. Government, the US Treasury, is constrained by an archaic rule: it has to “borrow” to cover any spending deficits. So Treasury issues bonds and swaps them for that newly-created checking-account money, reabsorbing and disappearing that money from private sector balance sheets.

If you consolidate Treasury’s deficit spending and bond issuance into one accounting event, Treasury is issuing new bonds onto private-sector balance sheets. It’s not printing “money,” not increasing the aggregate “money stock” of fixed-price instruments.

This was something of an Aha for me: If you look at the three mechanisms of asset-creation in the table above, only one increases the monetary aggregates that include demand deposits (M1, M2, M3, and MZM): bank (net new) lending.

Arguably there might be one more row added to the bottom of this table: so-called “money printing” by the Fed. But as with Treasury bond issuance, that doesn’t actually create new assets. The Fed just issues new “reserves” — bank money that banks exchange among themselves — and swaps them for bonds, just changing TheBanks’ portfolio mix. That leaves private-sector assets and net worth unchanged, and only increases one monetary aggregate measure: the “monetary base” (MB). 

I’ll leave it to my gentle readers to consider what economic effects that reserves-for-bonds swap might have. 

Related posts:

  1. Safe Assets, Collateral, and Portfolio Preferences
  2. The Market Doesn’t Think the Fed Will Ever Sell Those Bonds Back
  3. MMT and the Wealth of Nations, Revisited
  4. The Giant Logical Hole in Monetarist Thinking: So-Called “Spending”
  5. Currency is Equity, Equity is Currency

Republicanism in Europe

Published by Anonymous (not verified) on Mon, 26/11/2018 - 2:13am in



The working class cannot simply lay hold of the ready-made state machinery, and wield it for its own purposes.

Karl Marx

Lea Ypi of the LSE has written a interesting blogpost arguing that the electoral left’s accommodation with the capitalist state, the movement’s left’s evaporation into the global ether, and the communist left’s condensation around Cold War nostalgia have all contributed to the collapse of civic republicanism and the rise of ethnic nationalism. The national route to socialism has failed, and only the European one remains.

There’s much to agree with in the piece. Ypi is absolutely right that the left needs ‘to rejoin its critique of the capitalist economy with a critique of the neoliberal state.’ And this is one of the central themes in Labour’s broader programme in the UK. The party is trying to begin a wide-ranging conversation about the constitution of the national state in which it finds itself. For different reasons both labourism and communism have been disastrously incurious about this structure, too quick to dismiss it as a shadow cast by business that will vanish with the abolition of private property, or to seize on it as an instrument that can be used for socialist ends. And of course, the left needs to think at once internationally and constitutionally – to replace the existing global institutions with structures for cooperation that bring international relations under review by national and transnational publics. National democracy cannot survive in a global system characterised by domination.

But I am not sure who the piece is arguing with. The Labour Party is committed to respecting the EU referendum result because it is – rightly – fearful of the electoral consequences of not doing so. A small number of people made a left-wing case for Brexit in 2016. More have tried to make the best of a bad situation since then. But there is little appetite for leaving. It will make things much more complicated for a future socialist government in the immediate term. (It is much safer to break state aid rules within the EU than outside, after all.) Labour’s responsibility right now is to survive as a nationally viable civic republican and socialist project.

[Update: I am not at all sure that civic republicanism will succeed in Europe without support from national governments who are committed to it. And anyway, I am not sure that the EU is the appropriate scale for international coordination. Surely our ambitions ought to be global?]

A Local Economic Strategy for Thanet

Published by Anonymous (not verified) on Thu, 22/11/2018 - 2:36am in



thriving thanetOn Friday 23rd Neil McInroy will be giving a talk on ‘Building a Thriving Thanet’. Neil is the chief executive of the Centre for Local Economic Strategies, which has been at the forefront of an approach to economic planning called ‘community wealth building’.

‘Community wealth building’ sets out to use public and third sector cashflows to create positive feedback loops in local economies. Procurement policies favour local companies over large contractors, an activist council helps build capacity in the private sector where it is lacking, and promotes the co-operative sector where appropriate. There’s much more to be said about it, and Neil will be able to explain much better than I can the difference it has made.

Here I just want to make a few preliminary remarks about what a local economic strategy for Thanet might look like.

Local, Really Local

I am going to concentrate for now on Margate, because it is where I live and where I have thought most about the relevance of community wealth building. Getting Margate’s model right will have important spill-over effects for the rest of the district. But this is one piece of a puzzle that includes Ramsgate, Broadstairs and a mixed hinterland that includes high grade agricultural land and large scale retail at Westwood Cross.

It is important to remember that when we talk about Thanet we are talking about a built-up area and periphery that is home to more than 140,000 people, as large as many English cities. Given its distance, and difference from, Kent’s other main population centres, it is worth asking whether Thanet is best served by its current system of local government, or whether it would make more sense if it became a unitary authority.

The Curse of Beauty

Like many other seaside resort towns in England, Margate suffers from a particular variant on the ‘resource curse’. This was first proposed by economists who wondered why countries with massive oil and gas reserves were so often poor. The easy money from natural resources, the so-called resource rent, promotes economic inequality as revenues are captured by a relative handful of public and private elites. Behind a facade of respectability, rewards are distributed through corrupt patronage networks and their ability to move money offshore starves domestic sectors of investment and talent.

No one is suggesting that local government in Thanet is corrupt, of course. But in other respects Thanet is a bit like, say, Saudi Arabia. In its heyday as a resort, a small number of landlords captured the massive revenues generated by seasonal tourism and, rather than using the money to develop the rest of the economy in the region, they moved the money out of area. Their revenues were not dependent on the patient building of a productive base. People came for the sun, sea and sand. If the beer was expensive and the ice cream was made of pig fat, that was life. Or was until Benidorm beckoned.

As Margate’s fortunes as a resort recover, thanks in part to public investments via the Heritage Lottery Fund, it is important to grasp the extent to which the tourist sector is underpinned by the massive, unearned resource that is the town’s coastline and its capacity to generate heart-stopping skies. This should be understood as a public, commonly held asset, and the rents derived from it should be treated as source of public revenue, not as a windfall for private landlords. To put it another way, the value created by the location – the beauty resource – should be taxed and used for the purposes of general enrichment. (The value created by the ingenuity and effort of people is another matter.)

Sun, Sea, and the Socialisation of Resource Rents

The fortunes of the town depend on the distribution of revenues derived from its locational advantage. Both direct public ownership of land and taxation policy have a role to play in ensuring that the resource rent supports the local economy, instead of being lost ‘offshore’.

The public authority has an equally vital role to play in ensuring that resource rents are spent back into the local economy in ways that promote democratically agreed objectives.

Money kept in the area could be used to improve the town’s viability as a year-round resort, and to enhance the public realm. In sectors like public health it is possible to imagine a ‘sea-bathing spa’ approach to investment that both enhances its appeal as a destination and improves the quality of life of Thanet’s permanent residents. (The proximity of some of the best beaches in the South East to some of its most deprived communities is thought-provoking to say the least in this respect.) It could also be used as a source of start-up funding for local co-operatives, to strengthen local supply chains, and so on.

A spirited district council, backed by a public who understand what is at stake, could do some of this. To do more, it might be necessary to change both the structure of local government in Thanet in particular, and the tax-raising powers of coastal communities more generally. Coastal resorts are a particular kind of place and there is something to be said for an approach that takes this particularity seriously and develops a shared agenda from Margate and Great Yarmouth in the East to Blackpool and Weston-Super-Mare in the West.

Thanet, Jewel of the Thames Riviera

Margate ought to be a source of sustainable revenues for the rest of Thanet. Its needs as a visitor resort ought to be brought into harmony with the people who live in the area. Co-operative businesses created and sustained by the visitor economy ought to be able to expand and diversify from the visitor economy into other sectors as their collective capacities develop. But none of that will happen without a political fight, that will peel the small businesses away from rentiers and build a new coalition around a reformed and much more fully democratic public sector.

I’ll leave it there for now.



Fake News from the CBO? Some Very Dicey Numbers in the New Income Inequality Report

Published by Anonymous (not verified) on Thu, 22/11/2018 - 2:15am in



It didn’t take long to realize that something was very wrong.

The Congressional Budget Office just released its new report on The Distribution of Household Income, updated to cover 1979–2015. One thing in particular looked very dicey right off (source xlsx):

Household Capital Gains (per household, average)
2007: $8,800
2008: $4,400
2009: $2,200

Wait a minute. Households didn’t incur capital losses in any of those years? Like…trillions of dollars in losses, as real-estate and equity prices dove for the zero lower bound? Red flag, something’s wrong here. (And yes: the CBO does include cap gains in this household “income” measure. Below.)

The report gives zero explanation anywhere I can find of how cap gains are measured/estimated/calculated. But for certain, the CBO’s measure is wildly lower, and wildly less volatile, than other (well-documented) measures:

These other two measures move much more closely together. The CBO measure is the huge outlier. And besides being unexplained, it’s just obviously wrong on its face. It’s missing 60–75% of recent decades’ household capital gains.

Since the top 20% of households own 85% of U.S. wealth, cap gains go overwhelmingly to them. So this cap-gains under-estimate makes invisible a huge part of their income (increases) over decades — whether you’re talking before taxes and transfers, or after. #GotInequality?

State and Local Taxes

Next up: smaller but still pretty huge: when calculating its “after-tax/after-transfer” household income numbers, the CBO ignores state and local taxes — $1.8T last year. If that measure incorporated those taxes, income would be about 15% lower over recent decades.

State and local taxes are regressive: lower-income households pay a higher tax rate (in some states, wildly higher). So with a complete measure you’d see lower after-tax incomes especially among those with…lower incomes.

The CBO measure does of course include federal taxes (which are progressive, especially in lower tiers), and it does include transfers from the states. It seems very odd to exclude taxes paid to the states.



Related posts:

  1. Taxes: Equity versus Efficiency? Not so Much
  2. Warren Buffett: Estate Tax Good
  3. Are Progressive States More or Less Prosperous? Not Really
  4. Are Low-Taxing States More Prosperous? No. QTC.
  5. Another Comprehensive Approach: The Fair Share Tax Reform Proposal

Republicans Want to Make Entitlements the Next Caravan

Published by Anonymous (not verified) on Tue, 20/11/2018 - 6:29am in



When Republicans passed the Tax Cuts and Jobs Act, they knew it was projected to add $1.5 trillion to budget deficits over the next 10 years. They did it anyway.

Many Democrats pointed out the hypocrisy of the GOP embracing budget deficits after purporting to decry them for so many years under President Barack Obama. Others warned that driving up the deficit was all part of a calculated plan to cut Social Security, Medicare and Medicaid.

How are the Republicans trying to carry out that plan? Basically, by creating the fiscal equivalent of the migrant caravan.

After voting for the tax legislation, Arkansas Republican Steve Womack, chairman of the House Budget Committee, sounded the fiscal alarm. “The time is now for Congress to step up and confront the biggest challenge to our society,” he said. “There is not a bigger enemy on the domestic side than the debt and deficits.”

It does no good to remind Republicans that their tax cuts added trillions to future debt and deficits (nor does it matterall that much). They’re not having any of that. As Senate Majority Leader Mitch McConnell explained to Bloomberg last month, “It’s disappointing, but it’s not a Republican problem.” Entitlements, he said, are “the real drivers of the debt,” and the only way to deal with the looming crisis is “to adjust those programs to the demographics of America in the future.”

Ratcheting up the threat level is national security adviser John Bolton, who recently warned that entitlements are pushing the debt to unsustainable levels, where we will ultimately face “a national security consequence.”

Yes, Republicans want us to believe that entitlements — like the caravan of Central Americans headed toward the U.S. — are a creeping threat to our national security.

In the case of the caravan, most Democrats vigorously rejected the narrative. They called it out for what it was — a political stunt designed to garner support for military action to defend the border from a manufactured threat. When Republicans make the case for cutting entitlements in the name of defending our nation from fiscal ruin, Democrats should respond with the same skepticism. The whole thing is a hoax.

Continue Reading on Bloomberg.com

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