Archive for May, 2011

A week and a half ago, I admitted I didn’t understand the fascination with reviving U.S. manufacturing.

Apparently, however, mainstream economists have come up with a new plan to boost the production of goods “made in America,” which will help U.S. industrialists compete on the global stage.

After conducting an in-depth analysis of the nation’s industrial output and long-term economic future, leading economists delicately suggested this week that maybe American manufacturers might want to think about abandoning their current products and start over with something nice and simple, such as a ball.

Claiming that the nation’s standing within the increasingly competitive global marketplace was perhaps not what it once was, the economists gently encouraged American producers to “wipe the slate clean” and rebuild their confidence by starting fresh with a plain, basic ball.

“You really shot for the moon and tried to do something grand, and we think that’s just great,” read a statement from the American Economic Association that was addressed to the nation’s manufacturing sector. “But let’s face it, the whole American manufacturing thing hasn’t worked out quite as well as we’d hoped, so we think there’s no shame in just paring down your ambitions slightly and focusing on making a really good ball, no more, no less. How does that sound?”

“Just give it a shot; it couldn’t hurt, right?” the statement continued. “We think you’d be really good at it.” . . .

A guide released by the AEA not only provides step-by-step ball-fabrication instructions, but also contains supportive and encouraging language aimed at instilling in manufacturers the idea that they are every bit as deserving of success as rising industrial powers such as China and Brazil.

“As long as everyone tries their hardest at making a good ball, there’s no reason the U.S. can’t reemerge as a world-class manufacturing nation,” AEA vice president Timothy Bresnahan said. “Optimistically, by the end of the decade we could see a flourishing industry that produces everything from a dowel to a cup to a different-sized ball.”

The AEA may have finally found a useful role to play.

My suggestion: rush out and find a copy of Butte, America [ht: mfa], a 2009 documentary film about the history of Butte, Montana as the site of what once was called both “the Richest Hill on Earth” and “the Gibraltar of Unionism.”

The film was created by Pamela Roberts, is narrated by Gabriel Byrne, and includes a mix of first-hand accounts, scholarly analysis (from John T. Shea, David Emmons, and Janet Finn), historical reenactment, rare archival footage, period stills, vintage political cartoons, and haunting family photographs.

Not only does Roberts provide an honest, sympathetic account of the history of copper miners’ struggles to create a life and to organize against corporate greed in Butte; she also establishes connections with the struggles of miners elsewhere in the world (from Chile to South Africa) and with contemporary attacks on workers and unions.

The most insightful comments during the course of the film come from former miners and descendants of miners. For example, Marie Cassidy, a miner’s daughter and now matriarch of a large Irish family, explains the love-hate relationship with the Anaconda Copper Mining Company, which provided jobs and contributed a large amusement park but, as she makes clear, it alone decided when, where, and how workers would be hired and how the profits would be spent.

This is what became of Butte after Anaconda decided to leave:

The United States is a low-tax nation, at least for the rich and big corporations.

Bruce Bartlett makes that point clearly—and you can’t have much more conservative credibility than Bartlett (who served as a domestic policy adviser to President Ronald Reagan and was a Treasury official under President George H.W. Bush.)

by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.

Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again. . .

The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.

That’s it. End of story. As I have argued many times on this blog, the only reason there’s a fiscal deficit in the United States is because taxes on wealthy individuals and corporations have fallen to historically low levels, while their incomes and profits have risen to record highs. It’s not, as the right-wing argues, because social programs are too generous; or, as liberals argue, because health-care costs are out of control. It’s because those who can pay don’t.

Let’s look more closely at the 400 richest households in America, based on the latest Internal Revenue Service data. In 2008, they paid an average federal tax rate of 18.11 percent, as against 26.38 percent in 1992. In the meantime, their average income (in 1990 dollars) rose from $43.6 million to $164.2 million.

Moreover, as against those who argue wealthy individuals now earn a large percentage of their income by working hard (and thus through salaries and wages), the numbers tell a different story: in 2008, salaries and wages represented 8 percent of their adjusted gross income (compared to 26 percent in 1992) while net capital gains represented 57 percent (compared to 36 percent in 1992).

And what about the effective tax rates on the richest 400 households? 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent. Just as with corporations, the effective tax rate is much lower than the much-ballyhooed statutory rate.

The fact is, the United States has become a giant tax haven for wealthy individuals and giant corporations. If they paid their fair share of taxes, there would be no fiscal crisis and no need to cut social programs.

Cartoon of the day

Posted: 31 May 2011 in Uncategorized
Tags: ,

According to neoclassical economists, capitalism is a stable economic system in which everyone gets what they deserve.

However, in the midst of the Second Great Depression, and after decades of worsening inequalities, economists and community organizers are beginning to look at alternative economic systems. One of them is shared capitalism; the other is noncapitalism.

Nancy Folbre explores the case for shared capitalism,

a catchall for a variety of arrangements that businesses can make to share profits with a large number of employees, whether through stock ownership or incentive pay based on company performance.

On one hand, shared capitalism represents a critique of neoclassical theory, in that it presumes “normal capitalism” does not fairly share what is produced among employees. On the other hand, it represents an extension of neoclassical theory, in the sense that the sharing of profits can be understood as a solution to the principal-agent problem, i.e., as a way of aligning the interests of employees with the owners of the firm.

In any case, the sharing of profits is still a form of capitalism in that all the profits are privately appropriated by capitalists, and then some of them are shared with employees.

But shared capitalism is only the beginning of the discussion. Other economists are looking beyond capitalism, to a “new economy.” As Gar Alperovitz explains,

At the cutting edge of experimentation are the growing number of egalitarian, and often green, worker-owned cooperatives. Hundreds of “social enterprises” that use profits for environmental, social or community-serving goals are also expanding rapidly. In many communities urban agricultural efforts have made common cause with groups concerned about healthy nonprocessed food. And all this is to say nothing of 1.6 million nonprofit corporations that often cross over into economic activity.

For-profits have developed alternatives as well. There are, for example, more than 11,000 companies owned entirely or in significant part by some 13.6 million employees. Most have adopted Employee Stock Ownership Plans; these so-called ESOPs democratize ownership, though only some of them involve participatory management. W.L. Gore, maker of Gore-Tex and many other products, is a leading example: the company has some 9,000 employee-owners at forty-five locations worldwide and generates annual sales of $2.5 billion. Litecontrol, which manufactures high-efficiency, high-performance architectural lighting fixtures, operates as a less typical ESOP; the Massachusetts-based company is entirely owned by roughly 200 employees and fully unionized with the International Brotherhood of Electrical Workers.

The enterprises that form part of the so-called new economy—worker-owned, nonprofit, and employee-owned—all represent a movement beyond capitalism in that they call into question capitalist exploitation and allow the workers—those who produce the surplus—a larger role in both appropriating and distributing the surplus.

Sally Kohn [ht: bs] discusses another contribution to the new-economy movement, the $80 million “community economy” created by the Alliance to Develop Power, in western Massachusetts.

ADP is a membership organization comprising roughly 10,000 mostly low-income African-American and Latino leaders. Traditionally, ADP does what most community-organizing groups do—address issues that negatively affect their members, agitate for change and build their base for the next fight. But in its twenty-two-year history, ADP has done things a bit differently. “At the end of every issue campaign, our goal is to create an institution that our members control,” says outgoing executive director Caroline Murray. ADP members don’t want to continually fight those who own the economy. “We want to own stuff, too,” says Murray.

As Kohn explains, the Alliance to Develop Power encompasses a wide variety of initiatives, from housing (organized as tenant-run cooperatives) and a member-run landscaping business to a money services bureau and a projected urban farming program.

The point is, there are plenty of alternatives to existing forms of capitalism, both within capitalism and beyond it. Since most of us wake up on the wrong side of capitalism every morning, it’s about time we take the alternatives seriously.

Texas is giving us a real live example of modern right-wing budgetary politics in action: facing a growing fiscal deficit, the legislature and the governor have agree to balance the budget—without raising taxes!

How is that possible? By approving a two-year budget that spends $15 billion less in state and federal dollars than in the last budget cycle (plus a whole host of accounting tricks).

According to the Texas Observer, one effect of the Texas Tea Party budget is to kick the deficit can down the road.

Take a look at the state’s books and you will find a permanent deficit that runs about $5 billion a year. This is the result of a poorly designed scheme in 2006 to swap a property-tax reduction for a business tax that doesn’t generate enough money. Everyone at the Capitol knows about this mess. But no one has the guts—or the sense of responsibility—to deal with it. As a result, the structural deficit has now become as much a part of state government as the Capitol’s pink granite. In 2013—for the fourth session in a row—the state will start its budget process in a $10 billion hole at a minimum.

The other effect is a series of drastic cuts to social programs, especially education. As Andrew Leonard succinctly explains,

Texas schools are in crisis, but the government’s response to a budget shortfall is to cut funding for education even further. It doesn’t take someone with good math SAT scores to figure out what’s going to happen next.

What we’re seeing in Texas is a determined attempt to create a low-tax, business-friendly environment that is making the state look increasingly like its Third World neighbors to the south. Perhaps it’s just their way of returning to their Tejano origins.


Historically, the proletarianization of different social groups—craft workers, peasants, small business people, and so on—has led to a move to the Left in their politics. The latest group to be forced to have the freedom to sell their labor power, and to undergo a change in their politics, are medical doctors.

According to the New York Times,

Doctors were once overwhelmingly male and usually owned their own practices. They generally favored lower taxes and regularly fought lawyers to restrict patient lawsuits. Ronald Reagan came to national political prominence in part by railing against “socialized medicine” on doctors’ behalf.

But doctors are changing. They are abandoning their own practices and taking salaried jobs in hospitals, particularly in the North, but increasingly in the South as well. Half of all younger doctors are women, and that share is likely to grow.

There are no national surveys that track doctors’ political leanings, but as more doctors move from business owner to shift worker, their historic alliance with the Republican Party is weakening from Maine as well as South Dakota, Arizona and Oregon, according to doctors’ advocates in those and other states.

Maybe now, as doctors find their new left-wing proletarian voice—and join other, already proletarianized healthcare workers—we’ll see growing support for a real solution to the healthcare crisis in the United States.

Cartoon of the day

Posted: 30 May 2011 in Uncategorized
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Michal Kalecki should be required reading in both macroeconomics and economic development. But he’s not. In fact, I’d dare say a large number of macroeconomists and development economists have never heard of Kalecki, let alone read his work.

Instead, in the midst of the Second Great Depression, macroeconomics continues to be wedded to dynamic stochastic general equilibrium modeling; and, while a billion people around the world are forced to live in poverty, economic development has been reduced to behavioral experiments and tinkering with incentives.

Kalecki made many contributions to both macroeconomics and economic development (as well as economic planning) but one stands out: the role of class. And there’s no better place to begin than Jayati Ghosh’s essay, “Michal Kalecki and the Economics of Development” [pdf].

I explored Kalecki’s contribution to a class-analytic approach to macroeconomics in a previous post on the “Political Business Cycle.”

Ghosh also discusses Kalecki’s theory of the “macroeconomics of developed capitalist economies,” and then explains what Kalecki understood to be the key “differences between developed and developing economies.”

Kalecki saw the difference in the nature of unemployment as the most critical macroeconomic distinction to be made between developed and developing non-socialist economies. In developed capitalist economies, as described above, unemployment was seen to be related to the inadequacy of effective demand. This in turn meant that in a context of idle productive capacity, measures such as increasing government expenditure in order to raise the level of aggregate demand, through the “financial trick” outline above, would be effective in tackling the problem. In underdeveloped economies, however, Kalecki viewed the problem of unemployment (or underemployment) as structural, resulting from the basic and endemic shortage of capital equipment as well as bottlenecks in the supply of necessities. The solution to the problem was therefore also seen to be different and more difficult, since in such a context increased government expenditure could simply add to inflationary pressure.

Once again—in the case of developing economies, in relation to increasing investment—Kalecki focused on the political obstacles grounded in class.

it was the political obstacles that Kalecki found to be the most critical, because of the adverse reaction of domestic and foreign capitalists as well as other vested interests such as landowning elites. There would inevitably be opposition to some of the requirements of balanced development, such as increasing public expenditure by taxing the rich and altering agrarian relations.

That’s the dimension missing from development economics today: there is simply no attempt to understand, let alone intervene to change, the class obstacles to balanced development.

Moreover, Kalecki’s stand on financing growth in both developed and developing economies stands in sharp contrast not only to macroeconomics and economic development as they were practiced then, but also as they continue to be understood today.

The need to ensure non-inflationary (and therefore “balanced”) development was so important for Kalecki that the issue of financing development assumed centrality in his discussion of development. This is because he took the danger of inflation in developing countries extremely seriously. The fundamental reason for his abhorrence of inflation was its effect in reducing real wages, which he regarded as unacceptable. The most obvious reason for such distaste was in terms of an ethical opposition, since in both developed and developing capitalist economies (and indeed, even in socialist economies) Kalecki resisted the possibility of financing growth at the expense of the working class. In poor countries with already low level of workers’ incomes, reduction in real wages was all the more impossible for Kalecki to accept. Therefore the assumption that real wages must not fall was for him the starting point of any development strategy.

Kalecki’s assumption—”that real wages must not fall”—should indeed be the starting point of any development strategy, in the North as well as the South, today.

Greg Mankiw is perplexed by Martin Feldstein’s suggestion that Greece take “a temporary leave of absence from the eurozone.”

How that would work, logistically, is unclear to me.  Introduce a new currency, devalue it, then go back to the Euro at the new exchange rate?  It seems that Marty is mainly trying to figure out a way to rewrite wage contracts with a new lower level of nominal wages.

I think Mankiw gets it right. But, in all honesty, it wasn’t all that hard to figure out the goal of Feldstein’s proposal. He’s about as clear as can be that the solution to the crisis should be based on squeezing Greek workers.

Greece faces the difficult task of lowering the prices of its goods and services relative to those in other countries by other means, namely a large cut in the wages and salaries of Greek private-sector employees.

And that’s what, in his view, the “temporary leave of absence” would help to impose.

A temporary leave of absence from the eurozone would allow Greece to achieve a price-level decline relative to other eurozone countries, and would make it easier to adjust the relative price level if Greek wages cannot be limited.

The real question is, why was Mankiw perplexed at all? He and Feldstein share the same macro model in which all the necessary adjustments occur in the labor market. It’s all about decreasing real wages.

In Marxian terms, the goal is to increase the rate of exploitation. That’s what neither Mankiw nor Feldstein is willing to admit.