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A Small Anecdote about Alan Krueger

A Small Anecdote about Alan Krueger

It was back at the beginning of the 1990s, and I was putting together a panel on NAFTA for the ASSA meetings.  This would be URPE’s big plenary at the event, and, among others, I was able to enlist Cuauhtémoc Cárdenas, a leader of uncommon integrity and seriousness of purpose whose victory in the 1988 Mexican presidential election was overturned through blatant fraud.  I wanted someone of stature to present the case in favor of NAFTA, however, and I thought of Krueger because of his influential paper with Gene Grossman that argued for an “Environmental Kuznets Curve”.  (I discovered later the paper had been financed by the Mexican government.)  I sent a request to him, and he agreed to do it.

Needless to say, he faced a hostile audience.  He was denounced from the floor, and there was no one in the room to defend him.  I disagreed with him too, but on a human level I admired his willingness to take on this job—one for which he would receive no reward of any sort from his department, university or profession.  I’ve had the experience of making similar requests to bring mainstream panelists to URPE events (something I believe in strongly), and it isn’t an easy sell.  Alan took it all in stride.

I’ve subsequently leaned on him a few times for his opinion about empirical controversies I needed to address for UN-related work, and he was always prompt and helpful, a real mensch.  I’m sorry to see him leave us long before his time

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The government shutdown may have caused a mini-recession

The government shutdown may have caused a mini-recession

Aside from being a monumentally poor policy outcome, and aside from the hardship it caused nearly a million workers, the government shutdown may also have caused a general contraction in production, sales, and income, and a slowdown in employment, that if it were longer would qualify as a recession.

Because the affected three months straddle Q4 2018 and Q1 2019, both quarters will likely show positive real GDP growth, it won’t be a recession. Let’s call it a mini-recession.

Although shorthand for a recession is two quarters of GDP contraction, that wasn’t the case for 2001, and the NBER has indicated that a general downturn in production, employment, sales, and income are the crucial criteria. So let’s look at each.

Industrial production declined significantly in December, and the small rebound in January was not enough to overcome that downturn. This is especially true of the manufacturing component:

 

The same is also true of real retail sales:

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My Education in Going to College

As I explained in a conversation, what was done most recently by some wonderfully-over-funded people in an effort to get their children into a Tier one school certainly did not have to happen in the manner it did. They could have just approached school authorities and with a “Mellon’s” (Back to School’s – Rodney Dangerfield) audacity and offered to pay full ride and make a sizeable donation to the school. Maybe I am wrong; but, I do not know of many schools who would turn down a half a $million donation or so and a student who is willing to pay full price at the same time. Schools are short of funding. I am pretty sure this is going on today with little being said about the donations. Perhaps, others here would disagree with me?

Unfortunately, I was never so well-funded to initiate a back door funding approach such as what we are reading about today. My field of endeavor being Purchasing, Logistics, Distribution, and other similar disciplines did not command the type of salary to allow me to even hint at $hundreds of thousands or even $tens of thousands. In my field, we did not have the respect and admiration the reported actors had in their fields and accumulate such money. I was also caught in the 10 year economic cycle and one year spent time gaffing up trees and cutting them down. As Rodney would say; “Where does one go to get some respect around here?” It kept my family in one place and it paid the bills.

The Boston Globe’s Jeff Jacoby tells us what his mother said to him while a sophomore in high school; “If you want to go to college, you’d better get a scholarship.” I never had such a discussion with my parents other than my dad telling me not to do what he did. At 19 I was in the military, got out at 22, and married this pretty woman from NYC who in the beginning made more money as a Paralegal than I did with a college education. It paid the bills until such time as I caught up.

Suddenly I had responsibility for more than just myself. So I picked out a small Lasallian Catholic college, used my VA bennies and the state grant to pay for it, and finished up in three years. Never thought of Northwestern or University of Chicago as neither were in the cards and my parents would not have understood it much less pay for either. As a good Baptist I chose a Jesuit University over a Vincentian University for my Masters. Going to school at night then seemed to drag on forever. It was years later when I found out the high school and colleges I attended were pretty good schools. Each year, I donate a few hundred and get invited to various functions which I do not attend. I do not know anyone at these schools other than the Deans.

As advice to my own children, I suggested they go to where the money was. If they offered you grants and scholarships, they wanted you. If all they could conjure up was a subsidized Stafford loan at $3,000/year for a $30,000/year education, they were telling you something. Thank the school for their time and move on to the next one. In the end, it worked and we were also able to finagle a few more $thousand yearly at some pretty good small colleges for each. They do well for themselves and have paid their school loans.

As I sit here in my Levi jeans and ratty-looking Jesuit University sweat shirt writing this, I find myself agreeing with Jacoby and confirming what I already know; “No one needs to attend an elite university to get a decent education or to make a success of their lives, just as no one needs to wear a Dolce and Gabbana sweater to keep warm or drive a Ferrari Enzo to get from here to there.

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Interview with Andrew Yang

Now that Andrew Yang has made it into the first debate by meeting the fundraising threshold, and being on Morning Joe this morning,  it is time to post this interview of him via Freakonomics.

I was impressed by his thought approach.  He is the first person who is talking about the economy as a ecosystem of society.  That is, it’s not just about making money.  He does not come out and say it as I would but I think he is thinking about a question I have asked here in the past: What do we have an economy for?  Is it to just produce the biggest most powerful engine in the world and watch it run?

My concern is that the MSN is not prepared to do a proper interview with a person who actually wants to discuss a comprehensive idea regarding social structure and present a plan for it as observed on Morning Joe today.  You could just tell they wanted to throw out the memes of name calling:  “socialist”, “taxing the rich”, “taxing business”, “far left”.  But, I think Mr Yang handled it well considering the short time he had vs his scope of policy.  Plus Mr. Yang had facts noting his “freedom dividend” is what Alaska has.

I don’t expect him to win, but I do hope he and his ideas get more coverage and thus pushes the Overton window back toward society.  The problem is,  his idea is very comprehensive.  It’s talking about society.  Unfortunately, our mindset wants discussion boiled down to the “1 item” reductionist meme.  You know: How are you going to bring the nation together?  My answer: Oh, I don’t know.  How do you handle a 2 year old that always says No? (Mitch McConnell  et al)

 

Here is the link: http://freakonomics.com/podcast/andrew-yang/

 

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Elizabeth Warren, David Leonhardt, Redistribution, and Predistribution

I just had an unusual experience. I was convinced by an op-ed. One third of the way through “Elizabeth Warren Actually Wants to Fix Capitalism” by David Leonhardt, I was planning to contest one of Leonhard’s assertions. Now I am convinced.

The column praises Elizabeth Warren. Leonhardt (like his colleague Paul Krugman) is careful to refrain from declaring his intention to vote for her in the primary. I am planning to vote for her. I mostly agreed with the column to begin with, but was not convinced by Leonard’s praise of Warren’s emphasis on aiming for more equal pre-fiscal distribution of income rather than just relying on taxes and transfers to redistribute.

In particular, I was not convinced by

This history suggests that the Democratic Party’s economic agenda needs to become more ambitious. Modest changes in the top marginal tax rate or in middle-class tax credits aren’t enough. The country needs an economic policy that measures up to the scale of our challenges.

Here two issues are combined. One is modest vs major changes. The other is that predistribution is needed in addition to redistribution, as discussed even more clearly here

“Clinton and Obama focused on boosting growth and redistribution,” Gabriel Zucman, a University of California, Berkeley, economist who has advised Warren, says. “Warren is focusing on how pretax income can be made more equal.”

The option of a large change in the top marginal tax rate and a large middle class tax credit isn’t considered in the op-ed. I think this would be excellent policy which has overwhelming popular support as measured by polls (including the support of a large fraction of self declared Republicans). I note from time to time that, since 1976 both the Democrats who have been elected president campaigned on higher taxes on high incomes and lower taxes on the middle class (and IIRC none of the candidates who lost did).

This is also one of my rare disagreements with Paul Krugman, and, finally one of my rare disagreements with Dean Baker (link to a book which I haven’t read).

After the jump, I will make my usual case. But first, I note Leonardt’s excellent argument for why “soak the rich and spread it out thin” isn’t a sufficient complete market oriented egalitarian program. It is phrased as a question.

“How can the next president make changes that will endure, rather than be undone by a future president, as both Obama’s and Clinton’s top-end tax increases were?”

Ahh yes. High taxes on high income and high wealth would solve a lot of problems. But they will be reversed. New programs such as Obamacare or Warren’s proposed universal pre-K and subsidized day care will not. Nor will regulatory reforms such as mandatory paid sick leave and mandatory paid family leave. I am convinced that relatively complicated proposals are more politically feasible, not because it is easier to implement them, but because it is very hard to eliminate programs used by large numbers of middle class voters.

I’d note that I had already conceded the advantage of a regulatory approach which relies on the illusion that the costs must be born by the regulated firms. Here I note that fleet fuel economy standards are much more popular than increased gasoline taxes. One is a market oriented approach. The other is one that hides behind the market as consumers don’t know that part of the price of a gas guzzler pays the shadow price of reducing fleet average milage.

OK my usual argument after the jump

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Preventing Presidential autocracy: thoughts on reining in Executive power

Preventing Presidential autocracy: thoughts on reining in Executive power

Matt Yglesias posted a jarring tweet this past week when he wrote:

He elaborated by linking to a long-form article he wrote four years ago, explaining his position, where in relevant part, he wrote:

America’s constitutional democracy is going to collapse.

Some day … there is going to be a collapse of the legal and political order and its replacement by something else. If we’re lucky, it won’t be violent. If we’re very lucky, it will lead us to tackle the underlying problems and result in a better, more robust, political system. If we’re less lucky, well, then, something worse will happen.

….

In a 1990 essay, the late Yale political scientist Juan Linz observed that “aside from the United States, only Chile has managed a century and a half of relatively undisturbed constitutional continuity under presidential government — but Chilean democracy broke down in the 1970s.”

Yglesias — and Linz — saved me a lot of work. Because I had long ago heard that the US was the only Presidential democracy that hadn’t succumbed to autocratic rule. That was precisely Linz’s finding. At this point the only other democracies that I know of that come close are Costa Rica (since the last coup of 1948) and the Fourth and Fifth French Republics (since 1945).

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Lawrence Ferlinghetti Turns 100 Years Old

Lawrence Ferlinghetti Turns 100 Years Old

On the forthcoming March 24.

This last of the Beat Poets, who founded and still owns both the City Lights bookstore and the associated City Lights press, which legally overcame an effort in 1956 to prevent him from publishing Allen Ginsberg’s poem, _Howl_, he is not only alive and well by current reports, and looking forward to his centennial birthday party, but his bookstore on Columbus Avenue in San Francisco as well as his press are also doing well.  Apparently the celebrations will begin a week early on St. Patrick’s Day with a massive poetry reading and will go on for over a week, culminating on March 26 with a reconsideration of the 1956 case that led to him publishing _Howl_

His bookstore continues to be outstanding.  I bought s book about whales there for a grandson, and I also bought _Karl Marx’s EcoSocialism_, by Kohei Saito, Monthly Review Press, 2017, derived from a PhD dissertation written in German in Frankfurt-am-Main in 2016, although the author came out of Japan and relied heavily on Japanese sources as well as German ones. Particularly interesting are various notes on ecology Marx wrote that were never publlished, and, of course, remain in German.

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The Real Reason Stock Buybacks Are a Problem

By Steve Roth (reposted from Evonomics)

The Real Reason Stock Buybacks Are a Problem

 Buybacks are a massive tax dodge for shareholders

Bernie Sanders and Chuck Schumer’s New York Times op-ed, “Limit Corporate Stock Buybacks,” has thrown internet gasoline on the buyback debate. The left is waving the flag, and the right is trying to tear it down.

The core Sanders/Schumer argument: buybacks extract money from firms, money that could be used to pay workers more, and fund productive investment (including worker training and upskilling).

The counterargument: how are buybacks any different from dividend distributions that way? Both transfer cash from firms to households. We don’t hear people complaining about dividend distributions stealing money from workers and investment.

That counterargument is absolutely right, even while it’s completely wrong. Because both sides miss the overwhelming effect of stock buybacks (vs dividends). Buybacks are a massive tax dodge for shareholders.

Imagine Megacorp wants to transfer a billion dollars to its shareholders (notably including the huge shareholders in its C suite and on its corporate board). Whether they distribute dividends or buy back shares, either way Megacorp has a billion dollars less on its balance sheet. Its book value drops by $1B.

But what happens on the household, shareholder side? With a dividend distribution it’s simple; households get $1B in taxable dividend income. With a buyback, households that sell shares also receive $1B in cash, but they give up their shares, which obviously have value.

 

 

 

That’s where the (perfectly legal) tax avoidance lies — perhaps best explained by example:

Suppose the average shareholder’s shares were purchased for $20 each. That’s the shareholders’ tax basis. If Megacorp pays $25 a share (for 40M shares), the shareholders who sell have cap gains of $5 a share — $200M in taxable income — versus $1B if the same cash is paid out via dividends.

Dividends and long-term cap gains in the U.S. are currently taxed using the same rates and brackets: 15% if your income is above $38K, 20% if it’s above $425K. If Megacorp chooses a $1B stock buyback, our imagined shareholders pay $40M in taxes (at the 20% rate), versus $200M in taxes on a dividend distribution.

Neither of these has any effect on corporate taxes, by the way. C-corporation profits (as opposed to S corporations and other “pass-throughs”) are taxed at the corporate level, whether they get distributed or not, and no matter which distribution method is used.

There are other important problems with buybacks, mainly having to do with boards’ and C suites’ greater discretion over the timing and amounts of buybacks, and the potential for self-dealing price manipulation. (Contra Schumer and Sanders’ odd bank-shot approach to this problem, we could just repeal Rule 10B-18.)

But the right is right: Buybacks are no more pernicious than dividends in “stealing money” from firms, that could otherwise be used for worker pay and productive investment.

And they’re dead wrong that there’s no difference between the two. Buybacks steal money not so much from corporate wages, but much more obviously and explicitly: from taxes that contribute to our common public purse.

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Leading scenes from the February jobs report

Leading scenes from the February jobs report

Let me catch up with some details from last Friday’s employment report.

As a preliminary matter, the overwhelming take was that the poor +20,000 gain was “nothing to see here, just an outlier.” The problem with that take is that, for all of 2018, the average monthly gain in jobs was just over +200,000 a month. January came in more than 100,000 above that, at +311,000 jobs, and yet I don’t recall anyone taking the same position, that it was just an “outlier” to the positive side then! Here’s a graph, from which the 2018 average of 204,500 monthly jobs gain has been subtracted, so that the variance from that average shows as positive or negative:

So, yes, it’s true that February was a bigger outlier, to the downside, than January was, to the upside, but both were outliers. If you average the two months together, you get +165,500 jobs per month, a significant downdraft from the 2018 average.

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