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Protest of the day

Posted: 9 February 2016 in Uncategorized
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British football (i.e., soccer) fans are plotting a mass stadium walkout in protest over rising ticket prices.

The decision by around 10,000 fans to stage a 77th-minute walkout of the Liverpool-Sunderland game was the clearest indication yet that vast numbers of supporters have been driven to breaking point over the failure of teams to share some of their new £8.3 billion television contract, a windfall set to widen the gulf between those within the game and those who pay to follow it.

The protest on Saturday forced Liverpool’s owners to revisit their pricing policy for next season and came in the same week as an online backlash forced Arsenal to scrap a season-ticket surcharge, both of which emboldened campaigners against the rising cost of attending matches to crank up the pressure on other clubs.

A meeting of supporters groups was planned last night for the end of this week or the beginning of next week at which a number of options will be discussed, one being the viability of a mass walkout.

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One of the consequences of Bernie Sanders’s campaign for president is that economists and economic ideas that are often overlooked or marginalized are making the news.

Consider, for example, Gerald Friedman [ht: ja], a University of Massachusetts Amherst economics professor.* He’s front-page news on CNN, and that’s because he has provided “the first comprehensive look at the impact of all of Sanders’ spending and tax proposals”—including spending on infrastructure and youth employment, increasing Social Security benefits, making college free, expanding health care and family leave, raising the minimum wage, and shifting income from the rich to the working-class through tax hikes on the wealthy and corporations.

“Like the New Deal of the 1930s, Senator Sanders’ program is designed to do more than merely increase economic activity,” Friedman writes. It will “promote a more just prosperity, broadly-based with a narrowing of economy inequality.”

Emmanuel Saez, Professor of Economics at the University of California, Berkeley, is also in the news, because of his research on tax rates. In a 2011 paper he wrote with Peter Diamond, Saez argued that, in order to achieve a fair distribution of the tax burden in the midst of rising inequality, very high earners should be subject to high and rising marginal tax rates on earnings. While the top income marginal tax rate on earnings today is about 42.5 percent, they estimate the optimal top tax rate (which would maximize tax revenue from top-bracket taxpayers) to be 73 percent, even higher than Sanders is currently proposing.

“My feel is that the reasoning behind Sanders’s tax plan is not so much tax revenue generation from top earners but rather make top tax rates so high so as to discourage ‘greed,’ defined broadly as extracting income at the expense of the rest of the economy as opposed to real productive behavior,” Mr. Saez wrote in an email. “I think pretax top incomes would finally start to decline.”

Friedman and Saez are economists who are never cited in the mainstream media, and whose ideas are receiving a public airing precisely because of Sanders’s extraordinary success in the current campaign.

 

*Here’s the appropriate disclaimer: I did my doctoral work at the University of Massachusetts Amherst, although Friedman was not there at the time.

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William D. Cohan’s broadside [ht: ja] against Bernie Sanders hinges on a simple, but fundamentally wrong, argument: we all benefit from the risks taken by Wall Street.

Simply put, Wall Street’s purpose is to re-allocate capital from people who have it (savers) to those who want it (borrowers) and then use it to grow businesses that employ billions of people around the globe and help give them a modicum of wealth that they did not have before. One man’s speculation, in other words, is another man’s risk-taking. Without people willing to take those risks, and having the chance to reap their reward, there wouldn’t be an Apple, a Google, a Facebook, or countless other large corporations. The billions of people around the world who are employed by thriving companies would lose their jobs.

Clearly, Cohan doesn’t understand Wall Street (or, for that matter, the rest of the financial sector). It doesn’t collect capital from one group of savers and allocate it to another group of borrowers, which then creates jobs. Rather, it recycles the surplus created by people who work in order to allow those who appropriate the surplus to collect even more. In other words, Wall Street manages the surplus on behalf of a small group of wealthy individuals and large corporations. And it grows its own profits not as a reward for taking risks but by taking a cut of each and every financial transaction.

As we know, Wall Street does in fact take risks, as it did in the lead-up to the crash of 2007-08. But the risks were borne not by Wall Street, but by the rest of us—in the form of massive layoffs and foreclosures.

What about the other part of the argument, that Wall Street helps businesses grow?

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As it turns out, Matthew C. Klein addressed this issue just about a year ago. His argument, in short, is that productivity growth in rich countries started slowing down around the same time that the financial sector’s share of economic activity started rising rapidly.

First, the high salaries commanded in the financial sector — much of which can be attributed to too-big-to-fail subsidies and other forms of rent extraction — make it harder for genuinely innovative firms to hire researchers and invest in new technologies.

Second, the growth of the financial sector has been concentrated in mortgage lending, which means that more lending usually just leads to more building. That’s a problem for aggregate productivity, since the construction industry is one of the few that has consistently gotten less productive over time.

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In other words, as illustrated in the chart above, the growth rate in productivity was systematically faster when the finance sector was relatively smaller (from 1948 to 1975), and then when the finance sector got bigger, productivity growth got smaller (from 1976 to 2014).

The ultimate irony is that Cohan actually makes Sanders’s case for breaking up Too Big to Fail banks and reigning in Wall Street:

Sanders is right that Wall Street still needs reform. The Dodd-Frank regulations fail to measure up; Wall Street lobbyists and $1000-an-hour attorneys work away each day to gut the meager reforms signed into law by President Barack Obama in July 2010. It is also unconscionable that Wall Street’s compensation system continues to reward bankers, traders, and executives to take big risks with other people’s money in hopes of getting big year-end bonuses. Thanks to this system, which has been prevalent since the 1970s, when Wall Street transformed itself from a bunch of undercapitalized private partnerships (where those partners had serious capital at risk every day) to a group of behemoth public companies (where the risk is borne by creditors and shareholders while the rewards go to the employees), Wall Street has become ground zero for one financial crisis after another.

Neither Sanders nor I could have said it better.

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The spectacular crash of 2007-08, once a public spectacle of economists, politicians, and bankers, is increasingly becoming a popular spectacle in art.

Alessandra Stanley reviews some of the recent films, TV series, and novels—from The Big Short through Billions to Opening Belle—that attempt to represent the causes and consequences of the worst crash since the Great Depression of the 1930s.

Americans are once again paying for the 2008 financial collapse.

This time, though, it’s willingly.

Entertainment industry executives and publishers say there is a growing audience for movies, plays, television shows and novels that address the misdeeds and systemic failures that brought the economy to the edge of collapse eight years ago.

I wonder what impact these projects will have on the current political campaign in the United States, where both parties are being forced to deal with widespread discontent over the real-world spectacle of growing inequality, Too Bigger to Fail banks, and more instability ahead.

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Special mention

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Laura Meckler, as if to confirm my analysis of political change in 2016, explains,

Mr. Sanders’s surprising success—and Mrs. Clinton’s travails—highlight how far the party has moved leftward since her husband, former President Bill Clinton, steered it to the center in the early 1990s.

The Republican Party, meanwhile, has veered to the right.

Polls illustrate the shift in both parties. In 1990, just 13% of Democrats called themselves “very liberal,” while 12% of Republicans identified as “very conservative,” according to Wall Street Journal/NBC News polling. By last year the number was 26% for Democrats and 29% for Republicans. . .

Anger mounted during the Obama years over growing income inequality, particularly after Wall Street bailouts rescued some of the country’s richest people while many Americans struggled financially in a tepid job market.

Statistics explain voter fury. The top 3% of households had more than twice as much wealth in 2013 as the bottom 90% put together, according to the Federal Reserve. The top 400 taxpayers’ share of U.S. income doubled in two decades, according to the Internal Revenue Service. While top incomes rose, every other group was stagnant. . .

“Here’s a guy who owns the label of socialist. It’s inconceivable that a major candidate would have done that prior to Occupy,” Mr. Varon said. “Occupy gave a new prestige to a set of ideas that were normally considered quite marginal.”. . .

“In the last 30 years, when people say to me, ‘Bernie you’re coming up with these ambitious ideas. How can you afford them?’” Mr. Sanders told the crowd at a campaign rally Sunday. “The answer is in the last 30 years, there has been a massive transfer of wealth from the pockets of working families to the top 1/10th of 1%. And we can afford these programs because we’re going to transfer some of that wealth back.”

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Apparently, Goldman Sachs has developed a new high-speed algorithm capable of performing over 10,000 ethical violations per second [ht: sm]

NEW YORK—Calling it a major breakthrough that will significantly expedite and streamline its daily operations, Wall Street financial firm Goldman Sachs revealed Thursday it has developed a new high-speed algorithm that is capable of performing more than 10,000 ethical violations per second. “With this new automated program, we’ll be able to systematically deceive investors, engage in conflicts of interest, and execute thousands of other blatantly unethical dealings in the time it takes to press a button,” said John Waldron, co-head of Goldman Sachs’ investment banking division, who added that the high-frequency impropriety system will be able to break more rules in a minute than an entire floor of morally suspect securities traders, financial analysts, and portfolio managers could over the course of a week. “In the past, if one of our brokers wanted to exploit a questionably legal regulatory loophole or breach the covenant of good faith with an investment client, that would require hours of manually contravening the basic principles of professional integrity. But this innovative system will allow millions of such transgressions to go through every single day. Going forward, I expect this revolutionary program to be the cornerstone of our business.” Upon learning of the advanced new unethical algorithm, investors initiated a buying frenzy on Goldman Sachs stock, sending share prices surging more than 30 percent to $245.46.