Relevant and even prescient commentary on news, politics and the economy.

“If you tax investment income what will people do? Stuff their money in the mattress?”

“If you tax investment income what will people do? Stuff their money in the mattress?”

Steve Roth | October 15, 2012 9:25 pm

Richard Thaler asks exactly the right question. This from the latest IGM Forum poll of big-name economists, on the effects of taxing income from “capital.”

I’ve been over this multiple times before, but it’s nice to see the thinking validated by a real economist. If you’ve got money, there is no (practicable) alternative to “investing” it. (Those are irony quotes: referring to “buying financial assets,” as opposed to “buying/creating real [fixed] assets,” which is the technical meaning of “investing” in national-account-speak.)

Or actually — there is one alternative to “investing” your money: spending it.

Are the neoclassicals really going to argue that if we tax returns on financial assets at a higher rate — so “investors” have less after-tax income — they’re going to spend more? I don’t think I have to cite sources to prove that they consistently argue exactly the opposite.

But just for grins, let’s say they will spend more. That would be great! They’d increase the volume of private money circulation (P*T, or M*V, your choice) — boosting demand for real goods and services, stimulating production, and goosing GDP.

And if we’re lucky, they’ll use it for investment spending instead of consumption spending. They get to write off those real investment expenditures against their taxes, after all. Not true with consumption expenditures, much less purchases of financial assets.

In which case — this seems kind of obvious when you think about it — taxing “investment” income will increase investment (while reducing the federal deficit). What’s not to like?

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It’s a hoax says Limbaugh

Think Progress reports:

Limbaugh did not recant his earlier statements about Irma, and he did not encourage his listeners in the area to evacuate. In fact, Limbaugh seemed to even double down on his earlier views.

“The views expressed by the host of this program [are] documented to be almost always right 99.8 percent of the time,” Limbaugh said right before announcing he would be leaving South Florida for parts unknown. “There is a reason for that because we engage in a relentless and unstoppable pursuit of the truth and we find and proclaim it and that happens to drive people crazy.”

On his show Tuesday, Limbaugh said he was reading the paths of the hurricane and was certain it would curve into the Atlantic, and even if it did so, Limbaugh said “official” meteorologists and the media would have accomplished their goal.

“If it ends up not hitting where you are, hits somewhere else, you might temporarily breathe a sigh of relief, but you’re still gonna think, ‘Man, there might be something to this climate change,” Limbaugh said. “Do not doubt me, with everything being politicized, of course it is an objective of some, not everybody, of course, but some of the people involved here.”

Even Big Water was in on the conspiracy, Limbaugh concluded, as people were stocking up on cases of bottled water for the storm that wouldn’t come when they could just use the water coming out of their taps.

Limbaugh’s hurricane denialism came just a week after Vice President Mike Pence joined Limbaugh on the show to discuss Hurricane Harvey relief efforts, but, at any rate, Limbaugh seems to have stopped believing his own conspiracy.

As CNN security analyst Juliette Kayyem noted, Limbaugh has a large audience—his show reaches 15 million people per week—and many of his listeners believe his theories. While Limbaugh evacuates, others may stay behind in part because he wrote off the storm as a conspiracy.

Limbaugh did not respond to requests for comment about where he will be going.

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Why Economists Don’t Know How to Think about Wealth (or Profits)

by Steve Roth (originally published at Evonomics 2016)

Why Economists Don’t Know How to Think about Wealth (or Profits)

Until 2006, they quite literally weren’t playing with a full (accounting) deck. Most still aren’t.

By Steve Roth

In the next evolution of economics taking shape around us and among us, perhaps no school has been so transformational over recent decades as a loose, worldwide group best described as “accounting-based” economists. Modern Monetary Theory (MMT), with its central tenet of “stock-flow consistency” (or stock-flow coherence) is at the center and forefront of this group.

These accounting-based economists more than any others managed to accurately predict our recent Global Great Whatever. And Wynne Godley, rather the pater familias of MMT, predicted the current Euro crisis in amazingly precise and accurate detail — in 1992, before the project was even launched. These economists’ nerdy and businesslike, green-eyeshade and steel-tipped-pen approach gives them unique and accurate insights into the state of the economy, and its likely futures.

Given these decades of focus on national accounts, it’s amazing that almost no economists are aware of a pretty remarkable fact:

Before 2006, the U. S. didn’t even have complete, stock-flow-consistent national accounts. That was the year that the BEA and the Fed released the Integrated Macroeconomic Accounts (IMAs; also presented as the “S” tables at the end of the Fed’s quarterly Z.1 report). They provided annual tables extending back to 1960, based on the latest international System of National Accounts (SNAs). Think: Generally Accepted Accounting Practices (GAAP), but for countries. We didn’t get quarterly tables in these accounts until 2012, only four years ago. And even today, we don’t have quarterly tables for subsectors of the financial sector.

In June 2013, the Z.1 report was renamed, from the Flow of Funds Accounts of the United States to the Financial Accounts of the United States, and the IMAs’ comprehensive data has been steadily more fully incorporated throughout the report — notably in the up-front Page i table, “Growth of Domestic Nonfinancial Debt,” which is now “Household Net Worth and Growth of Domestic Nonfinancial Debt.” See also Table B.1, “Net National Wealth,” which was added in the September 2015 release.

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Trump and International Finance

by Joseph Joyce

Trump and International Finance

International trade and immigration were flashpoints of Donald Trump’s presidential campaign, and in his first year he has shown that he intends to fulfill his promises to slow down the movements of goods and people. Last month negotiations over NAFTA began with Canada and Mexico, with the U.S. trade representative Robert Lighthizer announcing that current bilateral deficits “can’t continue.” The President threatened to shut down the government if Congress does not approve the funding for a wall with Mexico—a threat that seems to have been retracted in view of the need to approve funding for relief funds to Texas. But another aspect of globalization—international financial flows—seems to have escaped the President’s wrath. The reason for this divergence tells us much about the reasons for the President’s opposition to economic globalization.

President Trump has complained about exchange rates, particularly those of China and Germany, insisting that their governments lower the value of their currencies to increase exports to the U.S. But the U.S. Treasury did not label either country a currency manipulator in its latest report, although they made the “watch list.” (How Germany manipulates the euro has yet to be demonstrated.) Similarly, Trump received considerable press coverage during his campaign when he attacked U.S. firms that allegedly transferred U.S. jobs abroad. Recently his indignation seems to have trailed off, and has been replaced by the assertion that lower corporate tax rates will serve as an incentive for U.S. firms to repatriate funds held abroad that they will spend on domestic investments—a claim with little evidence to back it up. The President has rarely voiced any concern about the impact of financial globalization.

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The single most important fact this Labor Day

(Dan here…lifted from Bonddadd blog; better a little late than miss it)

by New Deal democrat

The single most important fact this Labor Day

On Labor Day, highlighting the single most important secular problem in the US economy:

If there is a silver lining, it is that the hemorrhaging has stopped since the end of the last recession.

But we are long past the point where we need another corporate tax cut. We desperately need to increase Labor’s share of our $17 Trillion economy.

Happy Labor Day!

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Trump Labor Policy

Trump Labor Policy  by Noam Scheiber via NYT:

In June, Labor Secretary R. Alexander Acosta announced the withdrawal of two prominent Obama administration guidances — documents that do not change the law but indicate how a department interprets it and can influence employers.

The first had clarified when a worker could be classified as an independent business operator as opposed to an employee, who is covered by protections like the minimum wage and overtime pay. The Obama approach suggested that many so-called gig-economy companies were improperly treating workers as independent contractors when in fact they were largely dependent on the companies for their livelihood.

The second guidance had laid out when a company could be considered a so-called joint employer — meaning that it shared responsibility for a worker alongside a contractor, staffing agency or franchisee — and could therefore be held liable for infractions those other companies committed.

The administration’s entrepreneurial ethos is also reflected in its posture toward another rule: the requirement that employers pay workers a time-and-a-half rate for overtime if their salary falls below a certain threshold.

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A New Type of Labor Law for a New Type of Worker

Via the New York Times, William E. Forbath and Brishen Rogers write an op ed for Labor Day:

A New Type of Labor Law for a New Type of Worker

Labor Day was born in the late 19th century, during a time of raw fear about the path of economic development. Opportunities for decent, middle-class livelihoods seemed to be shrinking, and the “laboring classes” confronted a grim future of what many called wage slavery. Conservatives held most of the seats of power, but reform-minded politicians, activists and policy mavens were thinking big about labor’s rights and wrongs.

We can’t hope to build a more equitable economy unless working people have strong organizations of their own. During and after the New Deal, unions were essential to forging a broad new middle class — not only because they raised wages and benefits, but also because they countered corporate and financial political power, which today is the greatest impediment to serious change. Without a rejuvenated labor movement, it’s almost inconceivable that breakthrough reforms will come to pass.

First, because it arose out of the struggles of factory workers with big corporate employers, our labor law encourages bargaining at the employer or work-site level. This made sense when most workers were in large factories. But today’s workplaces are much smaller, even if they are owned or controlled by big corporations… Second, our labor law holds businesses accountable only to the workers whom they “employ” in an old-fashioned, contractual sense. That too made sense in the industrial era, when leading companies had millions of employees. But today, janitors, Amazon delivery drivers and warehouse workers are often employed by subcontractors who have little real power over their livelihoods. And Uber and Lyft drivers are misclassified as independent contractors. As a result, these workers don’t have clear rights to bargain with the companies that actually set the rules.

A few simple but bold legal reforms would make a world of difference. First, Congress could pass laws to promote multi-employer bargaining, or even bargaining among all companies in an industry. If all hotel brands, all fast-food brands, all grocers or all local delivery companies bargained together, none would be placed at a competitive disadvantage as a result of unionization, which is often the main reason employers resist it so fiercely. Second, Congress could ensure that organized workers can bargain with the companies that actually profit from their work by expanding the legal definition of employment to cover more categories of workers.

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