The Democratic National Convention and “Equitable Growth”

As we promised you in our last blog, we will now report the exciting turn-about-tale that has just occurred in the Democratic political platform. The Activist has thus far attempted to steer clear of political involvement because of how it obscures the truth. However, as the candidates become more and more specific in their platform proposals, it seems unavoidable not to refer to them specifically.

 Through most of the nominating procedure, only one contestant seemed to stay on course with regard to actual “plank” proposals—Bernie Sanders, who remained consistent from beginning to end as to what he was proposing. All the other candidates seemed more intent on establishing their reputations, for what they were worth. When they did make specific proposals, either they were too ridiculous or too tentative to be taken seriously.

 Hillary Clinton was the other exception but, through most of the contest, she appeared to be adjusting her program so as, either, not to be outdone by Sanders, or, to appear more sensible than he.

 However, just before the opening of the convention, in a great rush, plank-after-plank, the Democratic platform appeared and, behold! to our delight and surprise, it incorporated almost all of  what Sanders had been proposing right along. Delight, because it was his, Bernie Sanders, proposals that rang the truest, that most closely approximated the analysis of and cures for the Great Recession that we had read, that seemed most aware of the dangers of the enormous inequalities of wealth that Piketty, Atkinson and Stiglitz had taught us.


The extracts reproduced below are from an article we discovered in the July 24 Wall Street Journal.

Equitable Growth 

. . . Now the Democratic Party’s platform, reflecting the influence of Mr. Sanders and the clear leanings of its voters, goes further. It endorses:

  • Extending Mrs. Clinton’s original college plan to include free tuition at public four-year universities;
  • Expanding, not trimming, Social Security;
  • Raising the federal minimum wage to $15 an hour;
  • Implementing carbon pricing and a tax on financial transactions;
  • Passing a 21st-century version of the repealed Glass-Steagall Act regulating the financial sector;
  • Taking aggressive action on criminal-justice reform;
  • And much more. . .

. . .How did this happen? How did Democrats arrive so far to the left when in the 1990s it didn’t seem strange for their party’s standard-bearer, President Bill Clinton, to proclaim that “the era of big governments over”? . .

. . . It no longer seems plausible that American capitalism only needs some slight nudging to perform well, that leaving markets mostly alone will produce riches to benefit all. The first part of the 21st century, culminating in the Great Recession of 2007-09 and its aftermath, has undermined that story.

What America faces instead is what we might describe as capitalism’s “Piketty problem,” after the French economist, Thomas Piketty, known for his magisterial Capital in the 21st Century. This problem can be summarized by four propositions:

  1. The basic dynamic of the system tends toward higher inequality.
  2. This tendency makes economic growth less effective at raising living standards.
  3. Faster overall economic growth, even if unequally distributed, could potentially solve the problem.
  4. Except that rising inequality slows down economic growth, rather than speeds it up.
  5. Result: a vicious cycle of rising inequality, stagnating living standards and slowing economic growth.

That’s the Piketty problem. And American capitalism, left to its own devices, appears highly unlikely to solve it, which is why a solidly left program of spending and regulation seems eminently sensible under the circumstances. . .


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. . . the left-leaning programs proposed by Mrs. Clinton are solidly popular with the American public, not hard-core Democrats alone. . .

. . . High inequality would be viewed as not only unfair and injurious to those who come out on the short end of the stick but also as an active obstacle to a stronger economy. .

. . . This “equitable growth” approach is . . . intended . . . to rev the economic engine. In this, she differs from here erstwhile rival, Bernie Sanders. The Vermonter was far less focused on the need for growth, concentrating instead on the need for “political revolution” to overturn the power of the “billionaire class.” But Mrs. Clinton understands, correctly in my view, that much that the Democrats want to deliver—say, free college tuition and universal pre-K—will not be possible without a stronger economy. . .

. . . Expect Mrs. Clinton to move aggressively to strike bargains that advance key parts of her program, especially those that would directly boost growth in the short run. Reflecting this priority, Mrs. Clinton has repeatedly said that during her first 100 days she would call upon Congress to dramatically increase spending on roads, bridges and other public works, including to provide universal broadband and build a clean energy grid. Her $275 billion program, if implemented, would represent the greatest investment in American infrastructure since the development of the interstate highway system in the 1950s.

Mrs. Clinton would probably also prioritize measures that directly benefit the economically squeezed, like raising the minimum wage and mandating paid family leave. Those ideas were massively popular with the public (including many in the GOP). . .

. . . we can be sure that the Democrats, regardless of any initial stumbles, will press their left-leaning agenda and seek the equitable growth that has been sadly lacking in the 21st century so far.

Ruy Texeira, who wrote the above article, is a senior fellow at the Century Foundation and the Center for American Progress

Two more blogs on the outcome of the Democratic Convention Platform will follow this one.




It’s Business as Usual at the Democratic National Convention

The last four days of the Democratic Convention in Philadelphia have left us tongue-tied—the ease and apparent conviction with which Hillary adopted almost intact Bernie Sander’s progressivist platform. We fully intend to report on this as it is most important as we proceed in the year ahead.

But, meanwhile, money once again rears its pretty head and we must gently wave a flag of warning. Please read this article that appeared this morning on the front page of the New York Times. No wonder Bernie seemed so disconsolate as he sat among his fellow conventioneers.


By Nicholas Confessore and Amy Chuzik for the New York Times

PHILADELPHIA — In a luxury suite high above the convention floor, some of the Democratic Party’s most generous patrons sipped cocktails and caught up with old friends, tuning out Senator Bernie Sanders of Vermont on Monday as he bashed Wall Street in an arena named after one of the country’s largest banks.

On Tuesday, when Hillary Clinton became the first female nominee of a major party, a handful of drug companies and health insurers made sure to echo the theme, paying to sponsor an “Inspiring Women” panel featuring Democratic congresswomen.

And in the vaulted marble bar of the Ritz-Carlton downtown, wealthy givers congregated in force for cocktails and glad-handing as protesters thronged just outside to voice their unhappiness with Wall Street, big money in politics and Mrs. Clinton herself.


“This is a good place to be — for a lot of reasons,” said former Gov. Charlie Crist of Florida, a Democrat now running for Congress, as he glided through the room on Tuesday. “We must have set up five fund-raisers today. This is the bank.”

After a wrenching yearlong nominating battle with searing debates over the influence of Wall Street and the ability of ordinary citizens to be heard over the din of dollars changing hands, the party’s moneyed elite returned to the fore this week, undeterred and mostly unabashed.

While protesters marched in the streets and blocked traffic, Democratic donors congregated in a few reserved hotels and shuttled between private receptions with A-list elected officials. If the talk onstage at the Wells Fargo Center was about reducing inequality and breaking down barriers, Center City Philadelphia evoked the world as it still often is: a stratified society with privilege and access determined by wealth.

“The Clinton people would always argue, ‘Well, there’s no connection between the money and the actions that we take,’ ” said Jonathan Tasini, a liberal organizer and Sanders delegate from New York. “That’s what these cocktail parties and receptions are all about. It’s about access and whose phone calls get answered.”

For many Clinton donors, particularly those from the financial sector, the convention is a time to shed what one called the “hypersensitivity” that had previously surrounded their appearance at Mrs. Clinton’s fund-raisers or at her political events, during a period when Mr. Sanders repeatedly attacked Mrs. Clinton’s connections to Wall Street and her six-figure speaking fees from financial institutions.

“I think we’re past that,” said Alan Patricof, a longtime donor to Mrs. Clinton, when asked about the need to lie low during the primaries.

ritz-carlton_exterior_1-900VPThe Ritz Carlton Hotel in Philadelphia sits between The old Girard Corn Exchange and City Hall

In Philadelphia, donors were handed preferred suites at the Ritz-Carlton and “Friends and Family” packages created for longtime Clinton hands — some of them also longtime benefactors. Some were granted time backstage or in the Clinton family box with former President Bill Clinton and Chelsea Clinton. Blackstone, the private equity giant, scheduled a reception at the Barnes Foundation on Thursday with its president, Hamilton E. James, one of the leading Wall Street contenders for an economic policy post in a future Clinton administration.

The Philadelphia convention offered other symbolic contrasts to the party’s last two gatherings, when President Obama sought, with mixed success, to restrict his party from raising money to pay for the conventions from lobbyists or political action funds. Those shackles were thrown off this year, waving a green flag to Washington’s influence industry. Lobbyists and corporate representatives flooded the city, where much of the Democratic Party’s elite — and potential senior members of a future presidential administration — had gathered.

The railway giant CSX brought in old railroad cars for a reception led by Rodney E. Slater, the former United States transportation secretary turned lobbyist, who also headlined a panel on transportation policy in a future Clinton administration. At the Loews Hotel bar on Tuesday night, old Clinton hands, some now working as lobbyists, caught up with Gov. Terry McAuliffe of Virginia, a longtime family friend and one of the party’s most prolific fund-raisers.

At a private luncheon on Wednesday at El Vez, a Mexican restaurant, over a dozen Democratic governors mingled with representatives from a host of labor unions and companies, among them the Apollo Education Group, an operator of for-profit colleges that has faced a series of state and federal investigations into allegations of shady recruiting, deceptive advertising and questionable financial aid practices.

“It’s business as usual,” said Libby Watson, who monitored lobbying events in Philadelphia on behalf of the Sunlight Foundation, a group devoted to government transparency.

The biggest players gathered at the Ritz-Carlton, where a line of sport utility vehicles and limousines deposited waves of men in suits but no ties and elegantly dressed women bearing expensive handbags.

At first-come-first-served seats near the bar, assistants huddled around lengthy spreadsheets, figuring out which donors were entitled to which passes to which events. Outside, a protester walked with a sign denouncing big money. Inside, two stocky men could be heard debating the merits of the different ambassadorships they hoped to earn under Mrs. Clinton. Even a low-ranking posting meant having “ambassador” on a child’s wedding invitation, the two agreed, and would be helpful in wrangling invitations to sit on corporate boards.

A few feet away, Mary Pat Bonner, a gatekeeper to many prominent liberal donors, chatted with her most important client, David Brock, the founder of a cluster of outside groups that has raised millions of dollars to help elect Mrs. Clinton.

The longtime Clinton friend and fund-raiser Maureen White strode through the lobby, just missing Rajiv K. Fernando, the Chicago securities trader and Clinton donor, who resigned his appointment to a sensitive intelligence advisory board after questions were raised about his qualifications. Nearby were Heather Podesta, the Democratic lobbyist and Clinton fund-raiser, and Philip D. Murphy, the former Goldman Sachs executive and ambassador to Germany, now running for governor of New Jersey.

Occasionally, as bellhops leapt to open the lobby doors for another guest, the chants of protesters outside could be dimly heard.

John Graham, a New Jersey insurance executive and Clinton backer, said that after seeing the demonstrators outside the hotel, he had taken his daughter for a walk to meet some of them.

“It’s a little awkward, because guys like me are in here,” Mr. Graham said. “And we need to do something for the young people who are out there.”




Businesses Have One View of “Global Supply Chains”–Average Americans Quite Another

We May Not Know Who Will Win The 2016 Presidential Election, but We Already Know Who Has Lost It: Corporate America.

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Just as the aristocrats during the French Revolution, capitalists today find no one from either party, Democrat or Republican, to defend them from accusations of self-interest and greed in their conduct in the international marketplace.

This article by William A. Galston appeared in the July 20 Wall Street Journal

Open warfare has broken out between the U.S. Chamber of Commerce and the Republican nominee. The less-combative Business Roundtable makes no secret of its dismay over the choice of candidates it faces. The turn away from free trade and welcoming immigrants confuses business leaders who still cannot understand why anyone would object to these policies. The corporate sector favors moderation in social policy and a steady internationalism in foreign policy—the reverse of the main currents within today’s Republican Party.

Nor is big business as comfortable with Hillary Clinton ’s Democratic Party as it was with her husband’s, and with good reason. The party’s new left-leaning populism sees large firms as a principal source of the ills of working- and middle-class Americans. A Democratic victory in November would guarantee moves to rein in the financial sector, heighten scrutiny of mergers and acquisitions, and put the squeeze on corporations that shift jobs and profits overseas.

The political homelessness of corporate America is a kind of rough justice—the consequence of policies that have ended by alienating huge numbers of Americans. As recently as 1999, according to the Pew Research Center, 73% held “very” or “mostly” favorable opinions of corporations. By spring 2008—months before the financial crash and onset of the Great Recession—that share had already declined to 47%, and it fell further, to 38% in 2011, before bottoming out.

Other surveys help explain this negative attitude. In 2014, 66% of Americans told Gallup that big businesses were successful at creating jobs in foreign countries with which they were doing business. But only 43% thought U.S. companies were creating jobs domestically; 54% said firms were doing a poor job of balancing the best interests of the U.S. and American workers with the best interests of their company. Businesses have one view of “global supply chains,” it seems, and average Americans quite another.

The moral for corporate leaders is clear: If you care only about shareholder value, only your shareholders will care about you. And when a political crunch comes, your shareholders won’t be numerous or powerful enough to save you.

In a modern democracy, a stable relationship between citizens and corporations rests on a tacit compact. The people are willing to give big business substantial latitude to chart its own course. In return, business leaders are expected to give due weight to the interests of the people, including not only the businesses’ employees but also the citizens of the communities whose well-being the leaders’ decisions affect.

In the three decades after World War II, all parties to this compact understood its terms and mostly honored them. Since then, the social compact has weakened steadily, and many Americans now believe that it has broken down altogether. They have come to view corporations as employing a narrowly self-interested calculus to determine the level of wages and the location of production. And they are fighting back with the only weapon they have—their vote.

Many corporate leaders insist that they are doing what they must amid intensifying global competition. Their real choice, they say, isn’t between paying U.S. workers $20 an hour or Mexicans $3 an hour to make air conditioners, but rather between paying Mexicans $3 an hour and going out of business.

No doubt this is true in some cases.But if global competition is so intense, why are profits at near-record levels as a share of the GDP? Why is executive compensation soaring? It is hard not to conclude that many firms have taken advantage of soft labor markets to keep workers’ wages and benefits low.

If workers benefit from their firms’ performance only when full employment episodically enhances their bargaining power, they won’t enjoy the steadily rising standard of living that lies at the heart of the American dream. Looking back, they see that their household incomes are no higher than they were in the late 1990s. Looking ahead, they don’t expect better lives for their children.

Under these circumstances, it is easy to understand why so many Americans are in open revolt against policies they view as undermining their future. And they have grasped a key point: Globalization isn’t an abstract, irresistible force. It has political preconditions, including legal protections for mobile capital. Without international agreements, businesses could not confidently invest in new markets abroad.

It is telling that neither party’s presidential candidate has endorsed the Trans-Pacific Partnership—and that the business community is surprised. Business leaders should examine their own role in bringing this about. Unless they are willing to live with an America of increasing economic insularity, they must look beyond narrow, short-term self-interest to the long-term common good on which their own well-being ultimately depends.


More on the Unemployed Today in America

A long line of jobless and homeless men wait outside to get free dinner at New York's municipal lodging house in the winter of 1932-33 during the Great Depression. (AP Photo)

A long line of jobless and homeless men wait outside to get free dinner at New York’s municipal lodging house in the winter of 1932-33 during the Great Depression. (AP Photo)

A new White House study suggests that the kind of job security offered by many European countries (France foremost) —paid vacations, shorter hours, sick leave, etc.—long considered, anathema to a flexible job market by British and American economists, actually succeeds in holding prime-age men on the workforce in those countries, contrary to what is occurring in the U.S., where they are leaving the labor market in droves.

Does this surprise anyone but free-market enthusiasts? We all need to feel someone is looking out for us, someone cares.

How Being More Like France Might Help Labor Markets

–Neil Irwin for the New York Times, June 21

What if the very thing that is often viewed as one of the United States’ sources of dynamism — flexible labor markets — is the driving force behind the economy’s greatest weakness: millions of people who are neither working nor looking for a job?

That is a provocative idea that Obama administration economists explore in a new report looking at one of the crucial flaws in what on the surface is a healthy job market. Even as the unemployment rate has fallen to 4.7 percent — low by historical standards — millions of working-age Americans have pulled out of the labor market entirely. They neither work nor count as unemployed.

These missing workers are predominately less educated men, and their numbers have been mounting for decades. The White House Council of Economic Advisers calculates that in 1964, 97 percent of men with a high school degree or less in the so-called prime-age working years of 25 to 54 were working or seeking work. That is now down to 83 percent.

In the United States, there is less standing in the way between an employer who wants to hire someone and a person who wants to work than in most Western European countries or Japan.

Many economists have traditionally viewed this as positive. Yes, it means that workers are more vulnerable to being fired when the economy slumps, and many jobs come with fewer benefits like paid vacation and sick leave. But that should help the economy adapt to a changing world more quickly and ultimately lead to higher incomes. A mainstay of American and British economic commentary is preaching to the likes of France and Italy that they need more flexible labor markets.

In theory, this flexibility should create more opportunities for anyone who wants work to find it, in contrast with European countries where companies are more reluctant to add jobs because regulations and union rules make it costly to fire people or sometimes even change their jobs.

Yet a higher proportion of working-age men are in the labor force in many of these countries with inflexible labor market policies. In the United States, 12 percent of 25- to 54-year-old men were neither working nor looking for work in 2014. That number was 7 percent in Spain and France, and 4 percent in Japan. And that’s despite a more generous social safety net in those countries that would, you might think, make it easier to drop out of the work force.

In other words, whatever the costs and downsides of European-style labor markets, they don’t seem to inhibit the number of prime-age men who work. They may even make less educated men more likely to remain part of the work force.

Perhaps men without much education are more likely to seek work when positions offer job security and when regulations and unions push wages higher than they would be on a more open market. And perhaps that effect counteracts the economic negatives of these policies in terms of fewer jobs and less dynamic businesses.

“One traditional defense of American-style labor market arrangements is that though they may result in more inequality, the labor market will function better as a result,” the White House economists write. But the international comparisons “suggest that a successful labor market requires, at the very least, more than just flexibility but also policies or institutions that help connect workers with jobs or facilitate their taking jobs through subsidized child care or flexible workplaces.”

The data, they add, “suggests that the American labor market has room to improve when it comes to creating conditions for meaningful employment.”

What would those be? The Obama administration emphasizes policies to increase “connective tissue” in the job market. Those include improving community college and job training programs. The report also advocates improved unemployment insurance, and wage insurance programs that would provide income to people whose pay gets cut.

The economists also note some other factors that could explain the United States’ poor showing, particularly astronomical incarceration numbers. The male population in the United States includes many more former prisoners than in other advanced democracies, and they are disproportionately likely to be out of the labor force.

“The analysis in this report has shown that simply making labor markets more ‘flexible’ is, at least, not sufficient for effective functioning and that making labor markets more ‘supportive’ is essential,” the report said.

The White House study is part of a broader conversation that is only beginning about the failures of the American economy to create opportunities and good-paying jobs for less educated people, especially men. And it’s not just about economics. The absence of those opportunities has coincided with rising rates of depression, opioid abuse, early death and a range of social dysfunctions among this same demographic group of less educated, working-age men.

There is no guarantee that a more European-style labor market would solve America’s missing male worker problem, let alone solve those much bigger problems. But the international comparisons suggest less flexible labor markets might have some advantages.

 Neil Irwin is a senior economics correspondent for The New York Times, where he writes for The Upshot, a Times site for analysis of politics, economics and more.

Unemployment Down? Don’t You Believe It

Date Created/Published: 1910 Feb. 7. - Library of Congress, Prints & Photographs Division, Bain Collection - Reproduction number: LC-USZ62-63966 (b&w film copy neg.) - Rights Advisory: No known restrictions on publication.

One big reason the official statistics show a low unemployment rate is because so many people have quit looking for work

This article by Bob Funk, CEO and board chairman of Express Employment Professionals, appeared in the Wall Street Journal of July 15.  

Seldom has the unemployment rate been so low while public dissatisfaction has been so high. In 2000, when the unemployment rate was below 5%, just 37% of the country was dissatisfied with the way things were going, according to the Gallup organization. In 1988, the unemployment rate was 5.5% and a minority of the country, 47%, were dissatisfied.

With the latest jobs report pegging unemployment at 4.9%, Americans should be similarly satisfied, yet an astounding 69% tell Gallup that they’re dissatisfied with the way things are going.

One big reason the official statistics show a low unemployment rate is because so many people have quit looking for work. A recent Harris Poll conducted for my company, which places people in jobs, showed that 43% of the unemployed have given up looking. The labor-force participation rate today stands at 62.7%, stuck at levels not seen since the late 1970s, before women fully entered the workforce

Employers know that the real rate of unemployment is higher than 4.9%. People who aren’t looking for a job don’t get counted when the government calculates the unemployment rate, but they count when employers decide what wages to pay. So employers today don’t feel pressure to increase wages as they would if the unemployment rate were truly low.

Economists say that some decline in labor-force participation was expected. After all, the baby-boomer generation is reaching retirement age, and a greater number of younger Americans are pursuing higher education. But economists didn’t expect this much of a decline. According to a study from the Federal Reserve Bank of Atlanta, less than half of the decline from 2007 to 2014 can be explained by long-term demographic trends like an aging population and increased schooling among the young.

Among other major economies of the world, the U.S. is practically the only one facing this problem. According to a report from the Organization for Economic Cooperation and Development that looked at labor-force participation in 38 developed countries between 2000 and 2014, only three nations showed shrinking labor forces for workers in the 15 to 64 age range, and the U.S. was one of them, along with Denmark and Norway. Among the reasons cited for the declining labor force in the U.S. is working-age individuals giving up on finding a job.

People need hope. They expect to be able to find a job and, if they do well, see their wages rise over time. Instead, this economy is stuck for too many Americans, particularly the unskilled.

Better job-training programs are essential. Education, particularly for low-income Americans, needs reform, including loosening the grip of teachers unions and expanding school choice. Community colleges and vocational schools must work harder to make themselves solid alternatives to four-year degrees. Government payments, particularly for disability programs—which have risen by 29%-44% since 2003 among working-age Americans—need to be reined in so that they don’t become a disincentive to work.

Meanwhile, as long as the labor-force participation rate remains so low, don’t let anyone tell you the unemployment rate is 4.9%. Just ask those who have quit looking for a job; they know it’s much higher.

Thomas Piketty, Continued

Taxation of Excessive Incomes–An American Invention, Part II


Furthermore, the Great Depression of the 1930s struck the United States with extreme force, and many people blamed the economic and financial elites for having enriched themselves while leading the country to ruin. (Bear in mind that the share of top incomes in the US national income peaked in the late 1920s, largely due to enormous capital gains on stocks.) Roosevelt came to power in 1933, when the crisis was already three years old and one-quarter of the country was unemployed. He immediately decided on a sharp increase in the top income tax rate, which had been decreased to 25 percent in the late 1920s and again under Hoover’s disastrous presidency. The top rate rose to 63 percent in 1933 and then to 79 percent in 1937, surpassing the previous record of 1919. In 1942 the Victory Tax Act raised the top rate to 88 percent, and in i944 it went up again to 94 percent, due to various surtaxes. The top rate then stabilized at around 90 percent until the mid-1960s, but then it fell to 70 percent in the early 1980s. All told, over the period 1932-1980, nearly half a century, the federal income tax rate in the United States averaged 81 percent.

The Anglo-Saxon attraction to progressive taxation became even clearer when we look at the estate tax. In the United States, the top estate tax remained between 70 to 80 percent from the 1930s to the 1980s, while in France and Germany the top rate never exceeded 30-40 percent except for the years 1946-1949 in Germany (see Figure 14.2).

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The only country to match or surpass peak US estate rates was Britain. The rates applicable to the highest British incomes as well as estates in the 1940s was 98 percent, a peak attained in the 1970s—an absolute historical record. Note, too, that both countries distinguished between “earned income,” that is, income from labor (including both wages and nonwage compensation) and “unearned income,” meaning capital income (rent, interests, dividends, etc.). The top rates indicated indicated in Figure 14.1 for the United States and Britain applied to unearned income. At times, the top rate on earned income was slightly lower, especially in the 1970s. This distinction is interesting, because it is a translation into fiscal terms of the suspicion that surrounded very high incomes: all excessively high incomes were suspect, but unearned incomes were more suspect than earned incomes. The contrast between attitudes then and now, with capital income treated more favorably today than labor income treated more favorably today than labor income in many countries, especially in Europe, is striking. Note, too, that although the threshold for application of the to rates has varied over time, it has always been extremely high: expressed in terms of average income in the decade 2000-2010, the threshold has generally ranged between 500,000 and 1 million euros. In terms of today’s income distribution, the top rate would therefore apply to less than 1 percent of the population (generally somewhere between 0.1 and 0.5 percent).


Highclere Castle, Hampshire, England, traditional  country seat of the Earl of Carnarvon, was designed in the 19th century by Sir Charles Barry, architect of the Houses of Parliament, in the Jacobean Revival style. It sits in a 1000 acre park  designed a century earlier by Capability Brown, England’s foremost landscape designer. Today the Earl and his family live in “a modest cottage on the grounds,” no longer able to afford the upkeep of such a magnificent domicile.

The urge to tax unearned income more heavily than earned income reflects an attitude that is also consistent with a steeply progressive inheritance tax. The British case is particularly interesting in the long-run perspective. Britain was the country with highest concentration of wealth in the nineteenth and twentieth centuries. The shocks (destruction, expropriation) endured by large fortunes fell less heavily there than on the continent, yet Britain chose to impose its own fiscal shock—less violent than war but nonetheless significant: the top range ranged from 70 to 80 percent or more throughout the period 1940-1980. No other country devoted more thought to the taxation of inheritance in the twentieth century, especially between the two wars. In November 1938, Josiah Wedgewood, in the preface to a new edition of his classic 1929 book on inheritance, agreed with his compatriot Bertrand Russell that the “plutodemocracies” and their hereditary elites had failed to stem the tides of fascism. He was convinced that “political democracies that do not democratize their economic systems are inherently unstable.” In his eyes, a steeply progressive inheritance tax was the main tool for achieving the economic democratization that he believed to be necessary.

Introducing Thomas Piketty, the Man Who First Revealed the Extent of the Economic Inequality in Our Country

As we have hinted earlier, the strong underlying philosophy that is guiding us through these selected postings and accompanying commentary is that expressed by the French economist Thomas Piketty in his seminal book Capital in the Twenty-First Century. Not only was he, together with Emmanuel Saez, the first to discover the heretofore hidden financial data that has revealed the unbelievable extent of the economic inequality that exists in the world, and, in particular, in this country, but he has been able to explain it to us, unschooled in the esoteria of higher economics, in a way that is both vivid and clear. Piketty is, after all,  a professor at the Paris School of Economics.21f5d10f1f4a94878e62ef643edbd6c77d45b17fAs we are close in our reading to the end of the book and he is beginning to delve into possible solutions to rectify this huge wealth disparity in the civilized world, we will be posting more frequent blogs directly related to his discussion. We will begin this morning with a two-part excerpt from that book that deals with America’s wild pendulum swing from the country that led the way in taxing the rich, starting in the 1930s, to the modern country with the most favorable tax rates for the wealthy, beginning in the 1980s.  

Taxation of Excessive Income: An American Invention, Part I

When we look at the history of progressive taxation in the twentieth century, it is striking to see how far out in front Britain and America were, especially he latter, which invented the confiscatory tax on “excessive” incomes and fortunes. Figures 14.1 and 14.2 are particularly clear in this regard. This finding stands in such sharp contrast to the way most people inside and outside the United States and Britain have seen these two countries since 1980 that it is worth pausing a moment to consider the point further.

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Between the two world wars, all the developed countries began to experiment with very high top rates, frequently in a rather erratic fashion. But it was the United States that was the first country to try rates above 70 percent, first on income in 1919-1922and then on estates in 1937-39. When a government taxes a certain level of income or inheritance at a rate of 70 or 80 percent, the primary goal is obviously not to raise additional revenue (because those very high brackets never yield much). It is rather to put an end to such incomes and large estates, which lawmakers have for one reason or another come to regard as socially unacceptable and economically unproductive—or if not to end them, at least make it extremely costly to sustain the and strongly discourage their perpetuation. Yet there is no absolute prohibition or expropriation. The progressive tax is thus a relatively liberal method for reducing inequality, in the sense that free competition and private property are respected while private incentives are modified in potentially radical ways, but always according to rules thrashed out in democratic debate. The progressive tax thus represents an ideal compromise between social justice and individual freedom. It is no accident that the United States and Britain, which throughout their histories have shown themselves to value individual liberty highly, adopted more progressive tax systems than many other countries.

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The Gilded Age: Right and Left

Other more specific factors also mattered. During the Gilded Age, many observers in the United Stated worried that the country was becoming increasingly inegalitarian and moving farther and farther away from its original pioneering ideal. In Willford King’s 1915 book further. He chose to devote his presidential address to the question of US inequality and in no uncertain terms told his colleagues that the increasing concentration of wealth was the nation’s foremost economic problem. Fisher found King’s estimates alarming. The fact that “2 percent of the population owns more than 50mpercent of the wealth” and that “two-thirds of the population owns almost nothing” struck him as “an undemocratic distribution of wealth” which threatened the very foundations of US society. Rather than restrict the share of profits or the return on capital arbitrarily—possibilities Fisher mentioned only to reject them—he argued the best solution was to impose a heavy tax on the largest estates (he mentioned a tax rate of two-thirds the size of the estate, rising to 100 percent if the estate was more than three generations old). It is striking to see how much more Fisher worried about inequality than Leroy-Beaulieu did, even though Leroy-Beaulieu lived in a far more inegalitarian society. The fear of coming to resemble Old Europe was no doubt part of the reason for the American interest in progressive taxes.

This article will be completed tomorrow







Black–or White?

This op-ed piece from the Wall Street Journal is a concise, well-written description of the Democratic convention platform as it has evolved. It is accurate, informative–and like all views from the right, the obverse of the view from the left. Their black is our white–what we see as virtues, they deplore, and vice-versa. It’s a wonderful world. Their principal criticism with Hillary’s platform is she doesn’t acknowledge the slow pace of recovery from the Great Recession–a disaster for which they are chiefly to blame. Instead, they deride her concern with income inequality, an issue which, aside from global warming, is paramount today


The Democratic Platform’s Sharp Left Turn

By WILLIAM A. GALSTON, for the Wall Street Journal, July 12, 2016

In parliamentary systems, party platforms are blueprints for governance. In the U.S., they reflect the preferences of each party’s base—the activists and interest groups to which the party must pay attention. Changes in party platforms from one election to the next reveal shifts in thinking and—even more—the balance of power within the base as new groups surge and established forces give way.

That is why the 2016 Democratic platform is so significant. The platform committee hasn’t made public the text that will be taken to the Democratic convention in less than two weeks. But at this stage, based on the July 1 draft and 82 amendments to its text adopted by the end of the final platform committee meeting in Orlando, Fla., we know with near-certainty what the platform will say—and what it means.

The party that Hillary Clinton will lead into battle this fall is not Bill Clinton ’s Democratic Party. In important respects it is not even Barack Obama ’s Democratic Party. It is a party animated by the frustrations of the Obama years and reshaped by waves of economic and social activism.

Not surprisingly, the document endorses a range of Hillary Clinton’s campaign proposals, including a massive infrastructure-investment program, new incentives for small business, expanded profit-sharing to increase workers’ earnings, a tax on high-frequency financial transactions, paid family and medical leave, an enhanced earned-income tax credit for young workers without children, access to computer-science education for all K-12 students, and measures to make college education more affordable.

Neither is it surprising that the draft incorporates some of Bernie Sanders ’s key proposals—most notably, a $15 per hour minimum wage—and that it doesn’t take sides on issues that divided the party, such as the Trans-Pacific Partnership trade agreement and a broad tax on financial transactions, where neither side would give way.

In other respects, however, the draft is truly remarkable—for example, its near-silence on economic growth. The uninformed reader would not learn that the pace of recovery from the Great Recession has been anemic by postwar standards, or that productivity gains have slowed to a crawl over the past five years or that firms have been reluctant to invest in new productive capacity.  Rather, the platform draft’s core narrative is inequality, the injustice that inequality entails, and the need to rectify it through redistribution.

In her speech announcing her candidacy last year, Mrs. Clinton identified government reform as one of the four “fights” she would wage on behalf of the American people. She said that government “is never going to have all the answers—but it has to be smarter, simpler, more efficient, and a better partner. That means access to advanced technology so government agencies can more effectively serve their customers, the American people.” She added: “We need expertise and innovation from the private sector to help cut waste and streamline services.”

Four years ago, the Democratic platform contained a detailed section on “21st Century Government,” including a discussion of cost-effective regulatory reform, but this section finds no parallel—indeed, barely an echo—in the 2016 draft. One would never guess that Americans’ trust in the federal government is scraping bottom and that confidence-building measures are desperately needed.

Instead, this year’s platform will be suffused with proposals to expand the government’s reach and cost—and with confidence that today’s government is up to the job. As long as Americans don’t regard their national institutions as effective instruments of public purpose, many of these proposals—not all—will be a hard sell.

Another notable feature of the 2016 draft is its intensified social liberalism. The 2012 platform declared that the death penalty must not be “arbitrary”; this year, the platform will demand—for the first time ever—the death penalty’s abolition. The 2012 platform called for the reasonable regulation of guns but pledged to preserve “Americans’ Second Amendment Right to own and bear firearms.” There is no reference to the Second Amendment this time.

Calling for “constitutionally sound, evidence-based partnerships” with faith-based institutions, the 2012 platform declared that “there is no conflict between supporting faith-based institutions and respecting our Constitution.” Such language appears nowhere in the 2016 draft. But the document does call for a constitutional amendment that would make it possible to overturn decades of Supreme Court decisions on campaign finance.

The 2012 platform contained a handful of muted references to racial issues; this year’s draft places them in the foreground. The document pledges the Democratic Party to promote racial justice as well as environmental and climate justice, to advocate for criminal-justice reform, and to push for a “societal transformation” to make it clear that “black lives matter and there is no place for racism in our country.”

In this document, Hillary Clinton has made her peace with the Democratic Party as she found it in this tumultuous political year. Whether she would be able to lead a badly divided country on this basis—or whether she would choose to do so—is another matter.


Act III of “The Big Short” – A Fraud by Any Other Name Would Smell As Sour

U.S. Court of Appeals Totally Misses the Boat in an Important Mortgage-Fraud Case


An appeals court dealt the Obama administration a major setback in its efforts to levy tough fines on corporations and executives, overturning a civil mortgage-fraud case against Bank of America Corp. tied to the financial crisis.

The court on Monday also tossed out a $1 million civil penalty against Rebecca Mairone , a former executive at Countrywide Financial Corp., who was one of the few individuals fined for alleged misdeeds during the crisis.

The ruling by the Second U.S. Circuit Court of Appeals in New York raises the bar for the government to prove fraud against companies and individuals, weakening a weapon the Justice Department has used to push Wall Street to agree to big mortgage settlements.

If it stands, the three-judge panel’s unanimous decision could affect the remaining investigations into crisis-era mortgage securities, . . .

The appeals court panel threw out a $1.27 billion penalty against Bank of America over mortgages sold by its Countrywide unit, in what had become known as the “Hustle” case.

It revolved around a civil lawsuit that the U.S. attorney’s office in Manhattan filed against Bank of America in 2012. It alleged that a precrisis Countrywide program called Hustle had generated shoddy mortgages and then misrepresented those loans when selling them to Fannie Mae and Freddie Mac, which had to be bailed out by the government during the financial crisis.

The panel said the jury’s findings in 2013 that the loans sold to Fannie and Freddie were below the quality that had been promised might be considered an “intentional breach of contract.” But it said those transgressions didn’t constitute fraud, overturning the jury verdict that had been a signature win for government officials widely criticized for bringing few cases tied to the 2008 crisis. . .

“It is challenging to prove fraud,” said Brandon Garrett, a University of Virginia law professor who has studied corporate prosecutions. “Obviously, people don’t normally come out and admit that they know they were selling deceptive products. It’s hard to get smoking guns. And now the courts are saying, you need smoking guns at the beginning and end of the deal.”

The government could appeal the ruling to either the full appeals court or Supreme Court. . .

The issue, the court said, turned on the timing of any misstatements and whether at the time they were made, the bank or its employees knew they were false. In this case, the panel said, Countrywide entered into the contract to sell loans to Fannie and Freddie long before the alleged scheme to defraud the housing entities took place. . .

The Hustle penalty was relatively small compared with other fines paid by the bank, but it was an important step in the government’s efforts to push for bigger penalties against banks over related charges.

The charges and trial took observers deep inside Countrywide, which has been seen as a central player in the mortgage crisis. According to the government, the firm accepted borrowers’ applications without checking that income levels and other information were reasonable. It awarded bonuses to employees who could make the case that a loan deemed defective by corporate auditors was in fact eligible for sale to Fannie and Freddie, with little regard for whether customers would be able to repay them.

Ed O’Donnell, a former Countrywide executive who was the government’s star witness in the trial, testified that he was ignored when he alerted his bosses to deterioration in the quality of the mortgage loans.         — by ArunaViswanatha and Christina Rexrodet for the Wall Street Journal

Too bad the judge couldn’t have read the book—or at least seen the movie!



Needed: A New Paradigm

In this last part of an important recent article from the Wall Street Journal, China, originally heralded by us as the great new breakthrough market for American produce, turns the tables on us and makes us the dumping ground for all its cheaply manufactured goods–another serious miscalculation by our elite which, as usual, ends disastrously for our workforce.

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“The Great Unravelling,”  by Jon Hildenrath and Bob Davis continues:

Part Four

China, more than any other issue, shows the disillusionment with globalization.

At the 2000 White House conference, President Clinton said expanded trade with China would “open their markets to our goods and services.”

Reality has been rougher on American workers. Hillary Clinton, who pushed a Pacific Rim trade deal as secretary of state, now positions herself as tough on China and opposes that same trade deal.

Mr. Trump has made China-bashing a campaign centerpiece. Of America’s 100 counties with industries most exposed to Chinese imports, 89 voted for him in Republican primaries. Of the 100 least-exposed counties, before all of his competitors dropped out, 28 gave him the nod. Mr. Sanders takes a tough line on China.

Economists long recognized import competition hurt some workers but generally dismissed the costs as small relative to benefits such as cheaper goods. Research from widening trade with countries such as Japan and Mexico confirmed that theory, despite activists’ targeting the North American Free Trade Agreement as a job-killer.

Economists were blinded, though, to the scale of potential downsides, says Gordon Hanson, a University of California at San Diego economist. His work shows how soaring Chinese imports, which picked up after Beijing joined the World Trade Organization in 2001, magnified technology’s impact on jobs. “We were the high priests protecting free trade,” he says. “There was a little bit of intellectual insularity.”

Chinese competition, goosed partly by a currency China kept cheap, had far greater effects on U.S. manufacturing than any country since World War II—a finding MIT labor economist David Autor has helped make mainstream with Mr. Hanson and David Dorn of the University of Zurich. The trio studied 722 communities around the country and how they responded to import competition.

Their conclusion overturned conventional wisdom. China was simply different, they found in a 2013 paper. Its workforce was so vast, wages so low and productivity rising so fast, it caused greater disruptions in the American labor market than any country before.

“Washington and we in the establishment spent too much time celebrating the efficiency gains of trade,” says Timothy Adams, U.S. Treasury undersecretary under President George W. Bush, “and not enough time thinking about the people who were impacted.”

Between 2000 and 2007, import competition from China accounted for 982,000 manufacturing jobs lost, about one-fourth of all manufacturing job losses. Between 1999 and 2011, work published this year found, China accounted for 2.4 million jobs lost, including manufacturing and service jobs.

That loss might have been less damaging if U.S. workers were shifting from declining industries and towns and into growing ones, as they once did. However, fewer workers are willing to move, Mr. Autor and his co-authors wrote. Moreover, America is producing fewer fast-growing startups.

“We in this country have to worry about those who have been left behind in this country, and we have to worry about our role in the world and the vote in China in the next several months will be a crucial test of our country’s international sentiment.”           —Lawrence Summers, Treasury Secretary, April 2000

Surveying U.S. economic prospects, former Clinton Treasury Secretary Lawrence Summers invokes a Depression-era idea, “secular stagnation,” to argue a dearth of investment opportunities is holding back spending and growth while the income gap has created an overabundance of savings pushing down interest rates.

In the slow-growth world he foresees, global trade becomes more fraught as competitors grab for pieces of a pie that isn’t growing rapidly. Tensions over currency policies mount. Central banks have limited tools to cushion blows, putting pressure on fiscal policy—taxes and spending to boost investment—to spur demand.

That wasn’t what Mr. Summers argued at the 2000 White House conference, where he said the private sector was so abundant “with staggering high quality investment opportunities” it was the government’s job to get out of the way.

Today he says the government must help. “The world has changed,” he says. “So my views have changed.”


Trade with China and other nations would have a net positive impact on the economy as it would expose the world’s largest population to U.S. goods and services, while those hurt by trade in America would adapt and be supported.


Trade with China turned out to be a bigger shock to the economy than anybody expected, and the adjustment of the workforce slower.