Posts Tagged ‘corporations’

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Special mention

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Special mention

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Major events, when business as usual is disrupted, are perhaps the best test for ideas and the people who hold them. Do they have anything useful to offer, either by way of making sense of what happened or in terms of repairing the damage and imagining new possibilities?

We all know that mainstream economists failed miserably after the crash of 2007-08, when they offered little if anything to enhance our understanding of the causes of the crash (it wasn’t even a possibility in their models) or to chart a new path moving forward (the best they could come up with is the old debate between fiscal and monetary policy, while millions were forced into the unemployment lines and inequality resumed its grotesque upward trajectory). They spoke and wrote a great deal but the best they could offer was to keep calm and carry on. Everything, they claimed, would eventually be sorted out—without any major change in their theories or policy proposals.

More than seven years later and, as we know, nothing at all (except, perhaps, for the increasingly bloated finance sector) has been sorted out.

What about now, after Brexit? Once again, we find that mainstream economists have nothing to offer, either in terms of insight or a path moving forward.

Consider the example of the so-called Resiliency Authors, literally a who’s who of U.S. and European mainstream economists.* It’s no surprise they consider the United Kingdom’s choice to leave the European Union a mistake. Their dream, like that of most mainstream economists, was to lower trade barriers and expand the space of free markets. (They even have the temerity to assert all is well in the eurozone, as “economic health will eventually be restored, unemployment will decrease, and the periphery countries will regain competitiveness”). But the Brexit decision, they recognize, was made and now the only issue is “damage control.”

So, what do they offer? Basically, in their view, all the pieces (what they refer to as the financial “architecture”)—bank supervision and regulation, recapitalization funds, and so on—are already in place. All that is needed is “to make sure that the rules in place can be enforced.” As for the rest, their major concern is with high public debt—and, as with the problem of bank defaults, all they can imagine is “a combination of good rules and market discipline.”

That’s it. They exhibit no understanding that, after the debacles of Greece, Spain, and Portugal, not to mention the wrenching adjustments in Iceland, Ireland, and Italy (and, of course, the list could go on), and now with Brexit, the expanding space of private markets and corporate-led growth (which has now become, at best, corporate-led stagnation) is being called into question. No sense that a European Union without a vibrant Social Charter has no meaning, at least for the vast majority of ordinary Europeans. No idea that, their preferred combination of “good rules and market discipline” imposes all the costs of adjustment on European workers.

Once again, it seems, after business as usual has been disrupted—after the crash of 2007-08 and after Brexit—the best mainstream economists can come up with is. . .more business as usual.

 

*The list of signatories includes the following: Richard Baldwin, Charlie Bean, Thorsten Beck, Agnès Bénassy-Quéré, Olivier Blanchard, Peter Bofinger, Paul De Grauwe, Wouter den Haan, Barry Eichengreen, Lars Feld, Marcel Fratzscher, Francesco Giavazzi, Pierre-Olivier Gourinchas, Daniel Gros, Patrick Honohan, Sebnem Kalemli-Ozcan, Tommaso Monacelli, Elias Papaioannou, Paolo Pesenti, Christopher Pissarides, Guido Tabellini, Beatrice Weder di Mauro, Guntram Wolf, and Charles Wyplosz.

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A couple of weeks ago, I discussed a recent study about class and air rage. In the meantime, things have only gotten worse—on the ground.

Most people attempting to fly these days are forced to endure long security lines, all the while knowing that airlines are raking in enormous profits ($25.6 billion last year, a 241-percent increase from 2014) with low fuel costs, lots of additional fees (for baggage, reservation changes, food and drink, and much else), and shoe-horning economy-class passengers into tighter and tighter spaces.

Gail Collins is absolutely right:

The airlines have maximized profits by making travel as miserable as possible. The Boeing Company found a way to cram 14 more seats into its largest twin-engine jetliner by reducing the size of the lavatories. Bloomberg quoted a Boeing official as reporting that “the market reaction has been good — really positive.” We presume the market in question does not involve the actual passengers. . .

Rather than reducing the number of bags in security lines, the airlines would like the government to deal with the problem by adding more workers to screen them. And the perpetually beleaguered Transportation Security Administration is going to spend $34 million to hire more people and pay more overtime this summer. Which, it assured the public, is not really going to solve much of anything.

(Who, you may ask, pays for the security lines anyway? For the most part you the taxpayer do. Also you the passenger pay a special security fee on your tickets. Which Congress tends to grab away from the T.S.A. for use in all-purpose deficit reduction. I know, I know.)

A spokesman for Delta Air Lines, which took in more than $875 million on baggage fees last year, told The Atlanta Journal-Constitution that bowing to the extremely modest Markey-Blumenthal request for a summer suspension of the baggage fee wouldn’t “really help alleviate a lot.” It would also, he said, require a “considerable change to the business model.”

Heaven forfend we mess with the business model.

So, this summer, we can expect more rage not only in the air, as economy-class passengers are forced to put up with physical inequality on airplanes, but even before they get on the plane, knowing the extra fees they pay and the long security lines they’re compelled to endure are part of the airlines’ “business model.”

And that model is not about people, but only about profits.

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The folks at the Federal Reserve Bank of St. Louis find a correlation between inequality and stock prices. And, to their credit, they get half of the story: rising stock prices (and therefore increasing returns on equity wealth) have contributed to increasing inequality in the United States.

Comparing stock prices with the Gini coefficient provides further evidence of financial movement with income inequality. The steady increase in U.S. income inequality from the 1970s through the early 2000s was accompanied by strong gains in the stock market. The S&P 500 composite index grew from 92 in 1977 to over 1476 in 2007—about a 140 percent increase. These gains were huge. By comparison, the gains in the prior 30 years (1947-77) were only 50 percent. The correlation between the Gini coefficient and stock prices from 1947 to 2013 is strongly positive. As stock prices rise, the gains are disproportionately distributed to the wealthy. Lower- and middle-income families who are also wealth-poor are less likely to expose their savings to the higher risks of equity markets.

What they don’t get is the other side of the story: rising inequality has caused higher stock prices. A combination of higher profits for large, publicly traded corporations (which has served to boost the underlying returns on equity and allowed corporations to engage in stock buybacks) and a larger share of income going to the top 1 percent (as their share of the surplus has risen, which allowed them to purchase even more shares) fueled the increase in stock prices.

Once we put both sides of the story together, the conclusion is clear: rising inequality in the United States has been both a condition and consequence of rising stock prices from the late-1970s onward.

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As the New York Times [ht: sm] points out,

This year the Republican and Democratic nominating conventions in Cleveland and Philadelphia will be bankrolled entirely with money from corporations and wealthy individuals. Not since the Watergate era, when a $400,000 pledge to the 1972 Republican convention from ITT Corporation was linked to a favorable outcome for the company in a federal antitrust decision, has this happened. . .

The 2012 Republican convention in Tampa, Fla., cost about $74 million. That didn’t include millions more that corporate lobbyists spent on parties and concerts with top-name entertainment that took place outside the convention hall, and off-limits to TV cameras. The 2012 Democratic convention in Charlotte, N.C., cost about $66 million. Democrats tried to limit corporate sponsorship that year, but that didn’t lead to less spending. The convention instead went into debt, which Duke Energy, one of the nation’s largest electric power providers, paid off by forgiving a $10 million loan.

This year, the two political parties together will most likely spend upward of $150 million on their conventions, all of it paid by private entities.

This summer, two cities in the United States will thus be able to host the best parties money can buy.