Tag Archives: Leadership

The great tax debate—the world is turning

When intellectual and moral arguments align, the global climate can change quickly. That’s what’s happening with the US tax debate.
By Atanas Pekanov and Miriam Rehm – Policy proposals by lawmakers in the United States have spurred a hotly contested debate on taxation among economists in recent weeks. The Democratic congresswoman Alexandria Ocasio-Cortez argued that the US needed to raise additional revenue by going back to marginal top-income tax rates of up to 70 per cent to fund social programs and a Green New Deal, while the Massachusetts senator Elizabeth Warren proposed a wealth tax of up to 3 per cent on the richest.

While opponents and some commentators have deemed such proposals radical or ideological, both are buttressed by economic research. Economists largely seem to agree on some basic facts: inequality within the US has been rising and the benefits of growth have accrued largely to the top 1 per cent, while the real incomes of what in America is called the middle class have stagnated over the past three decades.

There is also consensus that the progressivity of the income-tax system has been eroded in many countries since 1980 and that wealth is currently much more unequally distributed than income.

The recent economic debate has thus revolved around whether higher taxes on top incomes or for very wealthy people should be deployed to counteract these trends. American progressives argue that higher revenues are needed if the US aspires to become more like the role-model European welfare state, with more inclusive social systems and better public services, financed by top marginal income-tax rates of above 40 per cent (in most EU countries) and/or some form of wealth tax. While some have misrepresented these ideas, they would only burden very wealthy individuals. more>

European Parliament elections—battle for ‘Europe’s soul’?

The European Parliament election campaign is entering full swing—a detailed analysis of the platforms of the main European party groups and what the political consequences might be for the EU over the next five years.
By Miriam Sorace – In his speech at the December congress of the Party of European Socialists, Frans Timmermans, the current lead candidate for the PES, defined these elections as being about ‘the soul of Europe’. Eurosceptic forces made important gains in the 2014 election and are set to increase their seat share again in the upcoming one.

Overtly pro-European forces also seem set to make important gains in electoral support, and new pro-European forces are also forming (for example, the Italian More Europe party or the pan-European Volt). As overt position-taking over EU institutions and powers starts to even up (while in the past it was monopolized by anti-EU actors), we may be finally entering the era of EU political contestation.

Rocked by forces that want, respectively, less and more Europe, the 2019 election results have thus the potential to define the nature of the EU for years to come.

The member states are still responsible for the running of European Parliament (EP) elections, but national parties (especially the more established ones) will signal their Euro-party or European Party Group (EPG) affiliation during the campaign. EPGs are ‘umbrella organizations’ joined by ideologically-similar national parties to coordinate their EP activities.

Some EPGs are well-oiled machines, such as the European Peoples’ Party (EPP) and the Socialists and Democrats (S&D, formerly PES)—founded, respectively, in 1976 and 1973. Others are of very recent establishment, such as the Europe of Nations and Freedom (ENF) group, created by radical-right Eurosceptic parties in the aftermath of the 2014 elections. Being part of an EPG has its advantages: it makes it easier for a national party to get rapporteurships, speaking time and committee chairmanships (as well as funding for administration/staff). more>

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How Trump’s Economic Chickens Are Finally Coming Home To Roost

By Steve Denning – Assisted by the least qualified White House staff in history, Trump has continued to breach conventional wisdom and practice. Yet Liberal analysts have watched with dismay as polls have showed stable support from Trump’s base, no matter how outrageous the behavior. Surely, they said, the economic reality of what Trump is up to must eventually kick in.

Now a trifecta of bad economic news for his base raises the question whether that time has finally arrived:

The comfort offered by Trump’s fictions is too seductive to be undermined by facts. To Trump’s base, the beautiful myth of “the Wall” is, and remains, more attractive than the real world.

In this way, “the Wall” has become a code-name for the racist, anti-immigrant isolationist policies of Trump’s presidency and a symbol of multiple toxic policies,

There’s a catch with the use of fictions in politics. “The chief disability of propaganda,” wrote Hannah Arendt in her classic book, The Origins of Totalitarianism, “is that it cannot fulfill the longing of the masses for a completely consistent, comprehensible, and predictable world without seriously conflicting with common sense.”

For a time, common sense can be held at bay and prevented from intruding into the cocoon of reassuring fiction. Yet the deliberate distortion of reality is also the cause of propaganda’s inevitable downfall. It is the inexorable collision with reality that eventually ruins the cocoon. It’s not a matter of whether. It’s only a question of when. more>

Tools for thinking: Isaiah Berlin’s two concepts of freedom

By Maria Kasmirli – ‘Freedom’ is a powerful word.

We all respond positively to it, and under its banner revolutions have been started, wars have been fought, and political campaigns are continually being waged.

But what exactly do we mean by ‘freedom’?

The fact that politicians of all parties claim to believe in freedom suggests that people don’t always have the same thing in mind when they talk about it.

Might there be different kinds of freedom and, if so, could the different kinds conflict with each other? Could the promotion of one kind of freedom limit another kind? Could people even be coerced in the name of freedom?

The 20th-century political philosopher Isaiah Berlin (1909-97) thought that the answer to both these questions was ‘Yes’, and in his essay ‘Two Concepts of Liberty’ (1958) he distinguished two kinds of freedom (or liberty; Berlin used the words interchangeably), which he called negativefreedom and positive freedom.

Negative freedom is freedom from interference. You are negatively free to the extent that other people do not restrict what you can do. If other people prevent you from doing something, either directly by what they do, or indirectly by supporting social and economic arrangements that disadvantage you, then to that extent they restrict your negative freedom.

Berlin stresses that it is only restrictions imposed by other people that count as limitations of one’s freedom. Restrictions due to natural causes do not count. The fact that I cannot levitate is a physical limitation but not a limitation of my freedom. more>

Updates from Chicago Booth

Why artificial intelligence isn’t boosting the economy—yet
By Alex Verkhivker – Measured productivity has been declining for more than a decade in the United States and abroad. It calls to mind Solow’s paradox, a 1987 observation by the Nobel laureate economist Robert Solow, who noted that one “can see the computer age everywhere but in the productivity statistics.”

It shouldn’t be a surprise that the same thing is happening with artificial intelligence, or AI, according to MIT’s Erik Brynjolfsson, MIT PhD candidate Daniel Rock, and Chicago Booth’s Chad Syverson.

AI is a once-in-a-lifetime, general-purpose technology that promises to provide an “engine of growth,” they write. This was also true of the steam engine, electricity, and the internal combustion engine.

And yet, the researchers point out, the steam technologies that drove the US industrial revolution took nearly 50 years to show up in rising productivity statistics. And the first 25 years after the development of the electric motor and internal combustion engine were associated with a productivity slump, with growth of less than 1.5 percent a year. Then in 1915, the pace of economic expansion doubled for 10 years.

In these cases, the researchers find signs of what they call “the productivity J-curve,” a period in economic data when productivity growth is underestimated, followed by a period when it’s overestimated. This dynamic may have also applied to the computer-powered information-technology era, with 25 years of slow productivity growth followed by a decadelong acceleration, from 1995 through 2005.

Why does this happen? more>

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Democratising Europe: by taxation or by debt?

Europe desperately needs to resolve its collective-action problem to emerge from the crisis. Democratizing Europe, with a fiscal capacity, is better than monetary easing.
By Manon Boujou, Lucas Chancel, Anne-Laure Delatte, Thomas Piketty, Guillaume Sacriste, Stéphanie Hennette and Antoine Vauchez – On December 10th 2018 we launched a Manifesto for the Democratization of Europe, along with 120 European politicians and academics. Since it was launched, the manifesto has accrued over 110,000 signatures and it is still open for more. It includes a project for a treaty and a budget enabling the countries which so wish to set up a European Assembly and a genuine policy for fiscal, social and environmental justice in Europe—all available multilingually on the website.

In the Guardian, on December 13th, Yanis Varoufakis presented his ‘Green New Deal’ as an alternative to the manifesto, which he considers to be irrelevant.

The Varoufakis plan builds on the European Investment Bank (EIB) which is responsible for issuing bonds to the value of €500 billion per annum, including these securities in the program of purchase of securities by the European Central Bank (ECB).

The main criticism by Varoufakis seems to be the following: why do you want to create yet more new taxes when one can create money? Our budget is indeed financed by taxation, whereas his plan is financed by public debt.

In his proposals, private firms involved in the ecological transition borrow money from the ECB, after having been selected by the EIB.

In fact, part of this arrangement already exists in the form of the Juncker plan. What Varoufakis adds is the purchase of securities by the ECB rather than by private investors. more>

Globalization at a Crossroads

By Gordon Brown – Whether or not one realizes it, 2018 may have been a historic turning point. Poorly managed globalization has led to nationalist “take-back-control” movements and a rising wave of protectionism that is undermining the 70-year-old American-led international order. The stage is set for China to develop its own parallel international institutions, auguring a world divided between two competing global-governance systems.

Whatever happens in the next few years, it is already clear that the 2008-2018 decade marked an epochal shift in the balance of economic power.

Whereas around 40% of production, manufacturing, trade, and investment was located outside the West in 2008, over 60% is today.

For decades after its formation in the 1970s, the Group of Seven (G7) – Canada, France, Germany, Italy, Japan, the United Kingdom, and the US – essentially presided over the entire world economy. But by 2008, I and others had begun to discern a changing of the guard. Behind the scenes, North American and European leaders were debating whether it was time to create a new premier forum for economic cooperation that would include emerging economies.

These debates were often heated. On one side were those who wanted to keep the group small (one early US proposal envisioned a G7+5); on the other side were those who wanted the group to be as inclusive as possible. To this day, the results of those earlier negotiations are not fully understood.

The current trade conflict between the United States and China is symptomatic of a larger transition in global financial power. On the surface, the Trump administration’s confrontation with China is about trade, with disputes over currency manipulation thrown in for good measure. But from Trump’s speeches, one gathers that the real battle is about something bigger: the future of technological dominance and global economic power.

While Trump at least detects the growing threat to American supremacy, he has ignored the most obvious strategy for responding to it: namely, a united front with US allies and partners around the world. Instead, Trump has asserted a prerogative to act unilaterally, as if America still rules over a unipolar world. As a result, a trail of geopolitical ruin already lies in his wake. more>

Overcoming The Trust Deficit

By Dimitris Avramopoulos – A prosperous, secure and united Europe will not be delivered to us on a silver platter. We will have to fight for it more than ever – with facts, with authenticity, with courage. It will not be enough to have the right solutions on offer – our citizens will have to be willing to trust and accept them too.

Citizens in Europe and across the world today are experiencing a growing deficit of trust. While the world is increasingly becoming globalized, interconnected, digitized and information-saturated, citizens are having trouble discerning what is fact and what is fancy – and most importantly: who to turn to and who to trust. Our citizens are looking for clear and straightforward answers and solutions, in a reality that is becoming all the more complex.

Populists and nationalists are experiencing heydays in times like these. What they tell citizens and their electorate no longer has to be true, as long as it is simple and appealing. We have seen very recently how in the absence of an actual crisis or problem, an imaginary one is created instead and how the seeds of distrust, confusion and fear are sown daily.

Today, there is no single, coherent enemy or threat: terrorism, cybercrime or hybrid threats constitute a particularly toxic and interchangeable cocktail of risks that we need to face on a daily basis, with the same unity in our approach. The cooperation between Member States was enhanced especially in the field of exchange of information between law enforcement authorities, crucial to fight terrorism, organized crime and cybercrime. more>

Why Wall Street Isn’t Useful for the Real Economy

By Lynn Stout – In the wake of the 2008 crisis, Goldman Sachs CEO Lloyd Blankfein famously told a reporter that bankers are “doing God’s work.” This is, of course, an important part of the Wall Street mantra: it’s standard operating procedure for bank executives to frequently and loudly proclaim that Wall Street is vital to the nation’s economy and performs socially valuable services by raising capital, providing liquidity to investors, and ensuring that securities are priced accurately so that money flows to where it will be most productive.

The mantra is essential, because it allows (non-psychopathic) bankers to look at themselves in the mirror each day, as well as helping them fend off serious attempts at government regulation. It also allows them to claim that they deserve to make outrageous amounts of money.

According to the Statistical Abstract of the United States, in 2007 and 2008 employees in the finance industry earned a total of more than $500 billion annually—that’s a whopping half-trillion dollar payroll (Table 1168).

Let’s start with the notion that Wall Street helps companies raise capital. If we look at the numbers, it’s obvious that raising capital for companies is only a sideline for most banks, and a minor one at that. Corporations raise capital in the so-called “primary” markets where they sell newly-issued stocks and bonds to investors.

However, the vast majority of bankers’ time and effort is devoted to (and most bank profits come from) dealing, trading, and advising investors in the so-called “secondary” market where investors buy and sell existing securities with each other.

In 2009, for example, less than 10 percent of the securities industry’s profits came from underwriting new stocks and bonds; the majority came instead from trading commissions and trading profits (Table 1219).

This figure reflects the imbalance between the primary issuing market (which is relatively small) and the secondary trading market (which is enormous). In 2010, corporations issued only $131 billion in new stock (Table 1202).

That same year, the World Bank reports, more than $15 trillion in stocks were traded in the U.S. secondary marketmore than the nation’s GDP. more>

How a Decade of Crisis Changed Economics

By J. W. Mason – Has economics changed since the crisis?

As usual, the answer is: it depends. If we look at the macroeconomic theory of PhD programs and top journals, the answer is clearly, no. Macroeconomic theory remains the same self-contained, abstract art form that it has been for the past twenty-five years.

As Joan Robinson once put it, economic theory is the art of pulling a rabbit out of a hat right after you’ve stuffed it into the hat in full view of the audience.

Many producers of this kind of model actually have a quite realistic understanding of the behavior of real economies, often informed by firsthand experience in government. The combination of real insight and tight genre constraints leads to a strange style of theorizing, where the goal is to produce a model that satisfies the methodological conventions of the discipline while arriving at a conclusion that you’ve already reached by other means. It’s the economic equivalent of the college president in Randall Jarrell’s Pictures from an Institution:

About anything, anything at all, Dwight Robbins believed what Reason and Virtue and Tolerance and a Comprehensive Organic Synthesis of Values would have him believe. And about anything, anything at all, he believed what it was expedient for the president of Benton College to believe. You looked at the two beliefs, and lo! the two were one. more>