Rethinking the Economy » Uncategorized

Once Again, My Hands Go on Strike

RethinkEcon — Mon, 30 Jan 2012 07:59:05 +0000

OK, so I’m really not 21 years old anymore: I pushed my hands too hard, and now I need to give them a serious break. I’ll be back in about two weeks.

Summing It up in a Sentence or Two

RethinkEcon — Mon, 16 Jan 2012 07:58:29 +0000

Here’s the latest attempt to sum up my framework:

Question:
If our economy isn’t “natural” and wasn’t inevitable, then what? What is the alternative that would actually work?

Answer:
We have more power to create a just economy than we think we do – but only if we embrace the limits of our power.

We have more power than we think we do to create an economy that works for everyone – but only if we embrace the limits of our power.

Although the wording still needs work, an overarching theme is starting to emerge – embracing our power and its limits. And that’s a sign that something’s starting to gel.

1996-2006: Inequality Went Up, Rich Got Richer off Wall Street

RethinkEcon — Fri, 06 Jan 2012 06:27:34 +0000

At the end of 2011, the Congressional Research Service put out a report on whether the gap between the rich and everyone else was shrinking or growing. The bottom line:

Inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income…

Income inequality, as measured by the Gini coefficient, increased between 1996 and 2006; this is true for both before-tax and after-tax income. Before-tax income inequality increased from 0.532 to 0.582 between 1996 and 2006—a 9% increase. After-tax income inequality increased by 11% between 1996 and 2006.

Why did inequality go up? A little because of salaries and taxes, but mostly because rich folks made more off of investments.

While earnings inequality increased between 1996 and 2006, this was not the major source of increasing income inequality over this period. Capital gains and dividends were a larger share of total income in 2006 than in 1996 (especially for high-income taxpayers) and were more unequally distributed in 2006 than in 1996. Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006. But overall income inequality would likely have increased even in the absence of tax policy changes.

For tax filers with income below the 80th percentile (i.e., the bottom 80%), the major source of income is from wages and salaries, which accounted for 82% of total income in both 1996 and 2006. The share from capital income (that is, capital gains, dividends, and business income) was very small in 1996 (about 4%) and fell to less than 3% in 2006. The share from retirement income (from pensions and IRAs) and other income (such as Social Security, unemployment compensation, and interest income) increased slightly between 1996 and 2006. The situation at the top of the income distribution is very different. For the top 20%, wages and salaries make up a smaller share of total income (60% in 1996) and this share fell by 10 percentage points between 1996 and 2006 to 50%. The share from capital income increased over this period, especially from capital gains and dividends. The situation is even more different for the top 0.1% of tax filers—wages and salaries account for about 20% of total income, with the share falling from 23% in 1996 to less than 19% by 2006. In both years, about half of the total income of the top 0.1% comes from capital gains and dividends; the share from capital gains and dividends increased by 6 percentage points between 1996 and 2006.

So when Romney and other Republicans talk about cutting capital gains taxes, they are talking about cutting taxes on 80% of the very rich’s income.

More “Extraordinary Radical Proposals” for Newt: WWJD

RethinkEcon — Tue, 13 Dec 2011 07:47:02 +0000

In his speech about making poor kids work as janitors, Newt Gingrich also said,

“You’re going to see from me extraordinarily radical proposals to fundamentally change the culture of poverty in America and give people a chance to rise very rapidly.”

If Newt needs another inspiration for “extraordinarily radical proposals” to fix what’s broken in America’s culture, I know just the guy.

And a certain ruler asked him, saying, Good Master, what shall I do to inherit eternal life? And Jesus said to him, Why call you me good? none is good, save one, that is, God. You know the commandments, Do not commit adultery, Do not kill, Do not steal, Do not bear false witness, Honor your father and your mother. And he said, All these have I kept from my youth up. Now when Jesus heard these things, he said to him, Yet lack you one thing: sell all that you have, and distribute to the poor, and you shall have treasure in heaven: and come, follow me. And when he heard this, he was very sorrowful: for he was very rich. And when Jesus saw that he was very sorrowful, he said, How hardly shall they that have riches enter into the kingdom of God! For it is easier for a camel to go through a needle’s eye, than for a rich man to enter into the kingdom of God. (Luke 18)

Why Our Solar Industrial Policy Is Failing: China, Not the Market, Is Smarter Than Us

RethinkEcon — Tue, 20 Sep 2011 19:44:16 +0000

One more thought about Solyndra, the solar energy startup that was the poster child of the Obama administration and just went belly up. A lot of folks saying this is why the government should stay out of the market — it’s not smart enough to pick winners and losers. Now, the US may have made some mistakes in how it backed Solyndra — or deciding to back this company at all. But as Todd Woody — a writer for the self-described “Capitalist Tool” Forbes magazine — shows, the bigger picture here isn’t how picking industries a failture. China’s doing pretty damn well and — well, let’s just say it’s not because the Chinese government is leaving the market alone.

Part of the reason Solyndra got intro trouble is that their business model assumed solar panel prices would stay high for quite a while. Instead, as Woody’s article back in October 2010 showed, solar companies have been

finding that the economics of the new industry have already been transformed, by the Chinese. Chinese manufacturers, heavily subsidized by their own government and relying on vast economies of scale, have helped send the price of conventional solar panels plunging and grabbed market share far more quickly than anyone anticipated. …

“The solar market has changed so much it’s almost enough to make you want to cry,” said Joseph Laia, chief executive of MiaSolé.

What has China done? Poured millions into the solar industry. For example,

Until very recently, Hunan Province was known mainly for lip-searing spicy food, smoggy cities and destitute pig farmers…. Now, Changsha and two adjacent cities [in the province] are emerging as a center of clean energy manufacturing.

Take the case of Sunzone.

The company has only 360 employees, who work in a modest two-story building and small factory. Many of them live in a six-story dormitory. The compound also has a demonstration house powered by solar panels.

But the government has granted Sunzone enough cheap land to make room for an orchard of orange trees, a nearly finished golf driving range and winding country lanes — all of it across the street from 17-story apartment buildings near the heart of downtown Changsha… As a clean energy business, Sunzone was allowed to buy the land two years ago for $90,000 an acre, Mr. Zhao said. That was one-third of the official price then for industrial land from the government.

This not only benefits Sunzone directly, but it also gives it a big advantage when it comes to its assets and debts.

Industrial land in this desirable neighborhood now sells for $720,000 an acre, giving Sunzone an eightfold profit on paper. The company carries the land on its books at this market price, and can borrow against it, Mr. Zhao said. The valuable land also means the company has big assets and little debt on its balance sheet, which should help attract investors for a planned initial public offering in 2012….

The local government of Zhuzhou, a city near Changsha, is even more generous. “For really good projects, we can give them the land for free,” said He Jianbo, the deputy director of the city’s flourishing high-tech zone, which already makes everything from electric buses to solar panels, and is preparing to build electric cars. “This land subsidy is not available to traditional industries, only high-tech industries.”

Then there’s capital. The US does help out.

In the United States, the Obama administration has approved $10 billion in grants, loan guarantees and other financing to help new entrants in the industry and aid existing companies, and has promised another $10 billion, said Matt Rogers, the senior adviser to Energy Secretary Steven Chu for economic stimulus programs. Almost all the money is for projects that will generate electricity for the United States.

But the American clean energy programs carry many time-consuming and difficult requirements. Companies must show they can repay loans and have innovative technology. The department has given conditional approval to 18 renewable energy loan guarantees, although only four have led to the actual issuance of loans so far.

In contrast, Western companies still face pretty steep hurdles:

Western clean energy companies complain of much higher financing costs — when they can raise money at all. Banks have been cautious about the sector, which leans heavily on venture capitalists and private equity firms that demand implicit interest rates of up to 9 percent right now in the United States, said Thomas Maslin, a senior solar analyst at IHS Emerging Energy Research.

In China, it’s like Disneyland with cheap passes:

China has been pumping loans into clean energy so rapidly that even $23 billion in credit offered by the China Development Bank to three solar panel exporters and a wind turbine maker since April has barely raised eyebrows. China Development Bank, owned by the government, exists to lend money for strategic priorities…. The company has reached a tentative deal to borrow $11 million, to increase employment to 600 workers. The bank will lend the money at an interest rate of about 6 percent, but the provincial government will then give Sunzone a direct rebate to pay more than half the interest on the loan. “Just yesterday, the bank general manager brought his staff here to see how they could be of service to us,” Mr. Zhao said. “We don’t need to go to the bank; they come here.”

This can be a huge advantage because the startup costs for creating high-tech factories can be quite high.

“If you change the interest rate half a percent or 1 percent, the difference is amazing, because the cost is all at the beginning,” said Dennis Bracy, chief executive of the U.S.-China Clean Energy Forum, a discussion group of Chinese energy officials and former American cabinet officials.

And then there’s permits:

With government help, Sunzone lined up financing and received all the permits necessary to build a factory in just three months under an expedited approval system for clean energy businesses. It took only eight more months to build and equip the factory. “The construction teams worked 24 hours a day, seven days a week in three shifts,” Mr. Zhao said.

Building and equipping a solar panel factory in the United States takes 14 to 16 months, and getting environmental and other permits can take years, said Tom Zarrella, the former chief executive of GT Solar in Merrimack, N.H., a big supplier of solar manufacturing equipment to factories in the United States and China.

Finally, China does what it can to create a market for these solar panels and keep the price of raw materials as low as possible for Chinese companies.

China until late [2009] required that 70 percent of the content of each wind turbine and 80 percent of the content of each solar panel be made within China. China quietly dropped that rule after objections from American officials, but also because its own industries had become the world’s largest, lowest-cost producers….

Chinese wind and solar power manufacturers further benefit from the government’s imposition of sharp reductions this summer in exports of raw materials, known as rare earths, that are crucial for solar panels and wind turbines. China mines almost all of the world’s rare earths.

Mind you, it’s not like the US believe in intervening seriously anywhere. If you’re Goldman Sachs – or you’re a nuke plant who’s buddies with McConnell — life is more like Sunzone than it was for Solyndra.

Obama’s Power

RethinkEcon — Mon, 22 Aug 2011 12:15:55 +0000

Eschaton nails it:

Floating around out there is the basic idea that the presidential bully pulpit isn’t very powerful. I can accept that no amount of presidential jibber jabber can force through policy (might be true, might not, but a reasonable argument). So, then, the entire point of presidential jibber jabber is simply the politics. It isn’t the package, it’s the advertising. Fair enough.

Has the focus on cutting the deficit for the past 20 months or so really been good politics?

This doesn’t let us off the hook — regardless of who’s President, you can’t expect much movement without a Movement. But it’s a good quote to keep in mind for the next time someone says, “but Obama was basically powerless because of the Republicans.”

Larry Summers: Slow Growth, Big Deficit

RethinkEcon — Wed, 03 Aug 2011 07:31:16 +0000

So the debt ceiling deal may be a really, really bad for a lot of folks, but it least it will reduce the long-term deficit, right? Don’t plan on it, says Larry Summers:

Objective observers would forecast larger U.S. budget deficits in the out-years than would have been predicted a few months ago. The economic forecast has deteriorated, and it is reasonable to estimate that even a half-a-percent reduction in growth averaged over 10 years adds more than a trillion dollars to the national debt in 2021.

Bottom line: even if you care more about the deficit than about the millions of Americans who don’t have jobs or are barely keeping afloat, focusing on the deficit is a losing game right now. We can’t reduce the long-term deficit without growth and jobs.

Cutting Oil Subsidies Won’t Raise Gas Prices

RethinkEcon — Tue, 03 May 2011 07:41:43 +0000

Big government is Socialism, government bureaucrats never do anything right, keep the government out of the market – all that goes out the window when we start talking about the price of gas at the pump. So when Democrats from Kucinich to Obama suggest we end some of the subsidies oil companies – who are making record profits – get from us taxpayers, the Right goes ballistic. At the truth of the matter is that gas prices are pretty hard to move; oil subsidies can’t make a big dent one way or the other. Courtesy of Daily Kos, a few choice quotes:

Claims this week from Fox News, National Review Online, RedState and other right-wing media that ending tax breaks would boost gasoline prices was disputed by, among others, Michael Canes, a distinguished fellow at the Logistics Management Institute and former chief economist of the American Petroleum Institute. In an e-mail to Media Matters, he wrote that ending subsidies to oil companies would have “very little” effect on oil prices. He said that there could be:

“Some small effect if at the margin domestic production is adversely affected, but I suspect that effect would be very small indeed. Personally, I’d like to see an end to ALL energy subsidies, but that’s another issue entirely.”

Severin Borenstein, co-director of U.C. Berkeley’s Center for the Study of Energy Markets, cutting subsidies to oil companies said:

“Gasoline prices are a function of world oil prices and refining margins. The oil companies are quick to point out that they are not to blame for oil prices because the price is set in the world market, or which they are a small share. That is all true. But one implication of that is that the incremental change in production that might result from changing oil subsidies will have no impact on world oil prices, and therefore no impact on gasoline prices.”

Nice Smackdown of “I Earned It, so It’s Mine”

RethinkEcon — Wed, 09 Mar 2011 07:54:23 +0000

In the past few months, right wingers have been arguing that we shouldn’t tax rich folks more because they earned their money all by themselves. British writer Johann Hari has a nice, quick smackdown:

They said that [Topshop CEO and billionaire Philip] Green “earns all his money on his own,” so why should he have to pay any of it back to the rest of us? I responded on TV and in a blog post by suggesting a small experiment. Let’s take one branch of Topshop, and for twelve months we’ll deny any services funded by collective taxation to that store. When the rubbish piles up, we won’t send garbage men to collect it. When the rat outbreak begins, we won’t send pest control. When they catch a shoplifter, we won’t send the police. When there’s a fire, we won’t send the fire brigade. When suppliers want to get their goods to the store, there may be a problem: we won’t maintain the roads. When the employees get sick, we won’t treat them in the publicly funded hospitals. Then let Philip Green come back and tell us he does it all himself.

Progressive Balanced Budget Plan: Lots of Ideas — and Lots and Lots of Words

RethinkEcon — Wed, 01 Dec 2010 07:00:16 +0000

I finally got a chance today to take a look at the progressive plan for balancing the budget that EPI, Demos, and The Century Foundation put out on Monday. There are a lot of smart ideas in the proposal, and it shows that we can deal with long-term budget issues without beating the crap out of the middle class and the poor.

I’ve only got one issue with it: too many words.

Take the Executive Summary. It’s nine freakin’ pages long. Nine. That, my friends, is not an executive summary. By the time an executive is a third of the way down the first page of a summary, their mind is already beginning to float: can I get away with bonking my executive assistant? What do I want to have for lunch today? If you haven’t grabbed them by then and they’ve got more than the rest of the page to go, forget it. Even a policy geek like myself is probably going to stop reading after page two and jump to the actual report.

If their “executive summary” doesn’t give us a bottom line, how about the press release? It’s only a page and a half long, but here’s the first paragraph:

Our Fiscal Security, a collaborative effort of The Century Foundation, Demos and the Economic Policy Institute (EPI), today released Investing in America’s Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility. This Blueprint is a comprehensive, detailed roadmap to immediate investments in job creation while addressing the nation’s long-run fiscal challenges. The Blueprint takes a very different approach from other prominent proposals, specifically prioritizing a strong economic recovery because widespread job creation and robust economic growth are essential to successful deficit reduction.

Let’s take the last sentence: “because widespread job creation and robust economic growth are essential to successful deficit reduction.” Really? I’m not saying it had to be as punchy as Demos’ “the middle-class is no accident.” But a sound bite to smack the Republicans upside the head this is not.

Why am I kvetching about the writing of this otherwise fine report (aside from the fact that I’m irritable this morning because I didn’t get enough sleep last night)? Because it’s a problem that an awful lot of progressive policy folks still have. If the media is convinced that you aren’t a Serious Person unless you want to inflict pain on the middle-class and poor folk, it’s going to be hard to punch through. When the odds are against you, you can’t just focus on having good ideas. You’ve also got to write short & sweet — and ideally with a little style.