Tag: Joseph E. Stiglitz

Nobel Prize winning economist Joseph E. Stiglitz discussed the problem of large corporations using tax loop holes to avoid paying taxes and how by closing those loop holes could be a cure for inequality and a faltering economy.

Stiglitz tells Bill that Apple, Google, GE and a host of other Fortune 500 companies are creating what amounts to “an unlimited IRA for corporations.” The result? Vast amounts of lost revenue for our treasury and the exporting of much-needed jobs to other countries.

“I think we can use our tax system to create a better society, to be an expression of our true values.” Stiglitz says. “But if people don’t think that their tax system is fair, they’re not going to want to contribute. It’s going to be difficult to get them to pay. And, unfortunately, right now, our tax system is neither fair nor efficient.”

Dr. Stiglitz’s paper, Reforming Taxation to Promote Growth and Equity, can be read here (pdf).

Seven Key Takeaways From Joseph E. Stiglitz’s Tax Plan for Growth and Equality

1. Raise Corporate Income Tax Rates While Providing Incentives for Investments and Job Creation in the US. [..]

2. Reduce Spending on Corporate Welfare [..]

3. Tax the Financial Sector [..]

4. Tax on Monopolies and Other Rent-Based Enterprises [..]

5. Ensure that Multinationals Pay Their Fair Share of Taxes and Have Incentives to Invest in America [..]

6. Tax Monopolies and Other Rent-Based Enterprises [..]

7. Make Dividend Payments Tax Deductible, But Impose a Withholding Tax [..]

Thomas Piketty: Is Inequality Inevitable?

   On Wednesday, April 16 at 6 p.m. Eastern time, Thomas Piketty will join economists Paul Krugman, Joseph Stiglitz and Steven Durlauf in New York to talk about his new landmark book, Capital in the Twenty-First Century.

   In a review, Krugman, who will appear on Moyers & Company this week, calls the book “magnificent” in part because it will “change both the way we think about society and the way we do economics,” adding that the French economist’s influence “runs deep.”

   “The big idea of Capital in the Twenty-First Century is that we haven’t just gone back to nineteenth-century levels of income inequality, we’re also on a path back to ‘patrimonial capitalism,’ in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties.”

What digby said:

This is the book everyone’s talking about. It’s said to be a towering work of scholarship and a tremendous breakthrough in the way we understand how the economy works.

Last week the House of Representatives killed a proposal that would have raised the minimum wage tp $10.10 an hour over two years. It failed with not one Republican vote in favor and six Democrats voting against it, as well. In an article for the Los Angeles Times, David Horsey says that while both Democratic and Republican politicians express concern for the middle class, they have failed miserably to address the growing class divide in the Unites States.

As politicians in Washington slam one another over competing budget priorities, most avoid facing up to the disturbing question behind all the numbers: Is the American Dream temporarily stalled or permanently kaput? [..]

This is not the country we like to think we are and it is not the country our political leaders are willing to admit they have helped create. Thirty years of catering to Wall Street, big business and the U.S. Chamber of Commerce has not boosted the American economy the way it was meant to do. Yes, the financial industry and giant corporations are awash in wealth, but they are not hiring more workers, they are not paying better pay, they are not enhancing benefits, they are not sharing the wealth. On the contrary, the typical American is working much harder for worse compensation. He or she is paying a bigger share of the healthcare bill and has no pension plan waiting at the end of the line.

This is an all-American crisis bigger than the deficit or the war on terrorism, but no one seems ready to take it on.

Mr. Horsey notes a rundown of the facts about today’s American economy by economics columnist Jon Talton:

• Worker productivity has increased nearly 23% since 2000, but hourly wages rose a pitiful 0.5% in that period.

• Taking a longer view back to 1973, productivity is up 80% between now and then, but pay is up only 11%.

• People at the bottom of the wage scale are earning less now than similar workers in 1979.

• Employees in the middle of the wage scale are getting 6% more than in 1979, but all that increase happened in the 1990s.

• High earners, meanwhile, are making 37% more than back in the 1970s, and the much-talked-about folks in the top 1% have enjoyed a 131% increase in earnings.

In his article, Mr. Talton furthers concludes:

This reality is at complete odds of our self-image as the Land of Opportunity. It is also a change from a previous America. We’ve been losing ground. Some reasons are obvious, others are complex. Many are familiar to readers of this column, and a few are the subject of sharp debate.

Globalization, offshoring and technology have decimated the old blue-collar middle class. The economy has shifted to service jobs that not only tend to pay less but are increasingly part time and temporary. [..]

Whatever the causes, little is being done to correct our trajectory into historic high inequality that is greater than other advanced nations.

Things may have to get worse before change happens. One thing is clear: Our situation is unsustainable and un-American.

Economist Richard Wolff joins Bill to shine light on the disaster left behind in capitalism’s wake, and to discuss the fight for economic justice, including a fair minimum wage. A Professor of Economics Emeritus at the University of Massachusetts, and currently Visiting Professor in the Graduate Program in International Affairs of the New School. [..]

“We have this disparity getting wider and wider between those for whom capitalism continues to deliver the goods by all means, [and] a growing majority in this society facing harder and harder times,” Wolff tells Bill. “And that’s what provokes some of us to begin to say it’s a systemic problem.”

Nobel Prize winning economist Joseph E. Stiglitz posted an interesting piece in the New York Times Opinionator that examines how income inequality is holding back the economic recovery:

The re-election of President Obama was like a Rorschach test, subject to many interpretations. In this election, each side debated issues that deeply worry me: the long malaise into which the economy seems to be settling, and the growing divide between the 1 percent and the rest – an inequality not only of outcomes but also of opportunity. To me, these problems are two sides of the same coin: with inequality at its highest level since before the Depression, a robust recovery will be difficult in the short term, and the American dream – a good life in exchange for hard work – is slowly dying.

Politicians typically talk about rising inequality and the sluggish recovery as separate phenomena, when they are in fact intertwined. Inequality stifles, restrains and holds back our growth. [..]

Prof. Stiglitz notes four factors that are the cause:

The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth. [..] The growth in the decade before the crisis was unsustainable – it was reliant on the bottom 80 percent consuming about 110 percent of their income.

Second, the hollowing out of the middle class since the 1970s, a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses. [..]

Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks. [..]

Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable.

Noting that one fifth of US children live in poverty, the professor points out that children living in Canada, France, Germany and Sweden have better economic futures simply because education and training are more affordable. The countries that responded best to the crisis on Europe had strong unions and strong social safety nets, something that this country is seems hell bent to destroy.

However, Prof. Stiglitz’s contemporary, Paul Krugman, somewhat disagrees arguing that these factors may have caused the recession, they are less of a draw on the recovery than Prof. Stiglits beleives. In the face of the recovery, Prof. Krugman rejects the “underconsumption” and tax receipt hypothesis:

It’s true that at any given point in time the rich have much higher savings rates than the poor. Since Milton Friedman, however, we’ve know that this fact is to an important degree a sort of statistical illusion. Consumer spending tends to reflect expected income over an extended period. If you take a sample of people with high incomes, you will disproportionally include people who are having an especially good year, and will therefore be saving a lot; correspondingly, a sample of people with low incomes will include many having a particularly bad year, and hence living off savings. So the cross-sectional evidence on saving doesn’t tell you that a sustained higher concentration of incomes at the top will lead to higher savings; it really tells you nothing at all about what will happen. [..]

Joe also argues that high income inequality depresses tax receipts, fueling fiscal fears. Again, I have trouble with this point: our tax system isn’t as progressive as it should be, but it is at least mildly progressive even when you take state and local taxes into account.

I’m in agreement with Prof Stiglitz on this, even with my rudimentary knowledge of economics. It would seem logical that if incomes are falling and the middle class is shrinking, then consumption of goods and services will fall as people have less disposable income. It follows that all tax revenues would also decrease.  

This weekend on MSNBC’s Up with Chris Hayes Nobel Prize winning economist Professor Joseph E. Stiglitz and Avik Roy, an adviser to Presidential Republican nominee Mitt Romney, debate the nominee’s tax plan and its impact on Americans.

In the second segment, Prof. Stiglitz and Mr. Roy try to outline what is known about Mr. Romney’s tax plan and whether he would be able to implement the plan if elected president.

Wages have not matched inflation, unemployment for those without work for more than six months is topping 40% while real unemployment (U-6) sits at 14.9%, the housing market continues to tumble. The cost of housing, food, health care, education, transportation has gone up while wages have gone in the other direction.

That is the reality of the US economy and it does not bode well for a sustainable recovery, not without a boost from the government. Nobel Economist Joseph E. Stiglitz writes that “the labor market is a shambles” and it’s not going to improve anytime soon without a boost from the government:

Let’s assume that job creation continues at the rate of 225,000 jobs a month. That is only about 100,000 beyond the number required to provide jobs for the average monthly number of new entrants into the labour force. At that pace, it would take 150 months to reach full employment – 13 years, some time around 2025. The independent Congressional Budget Office is more optimistic, forecasting the return of full employment by 2018. [..]

Before the crisis, 40 per cent of all investment was in property. We had a housing bubble that left a legacy of excess capacity. Continuing weakness in the property sector is reflected in high foreclosure rates and low home prices. [..]

Finally, US states and local governments are constrained, to a large extent, by having to balance their budgets. They depend heavily on property taxes, so both revenues and expenditures have plummeted. This is why there are a million fewer public employees than before the crisis. Government as a whole is being procyclical, not countercyclical. [..]

Unfortunately, little has been done about the underlying structural problems. Indeed, the downturn, during which wages have not kept pace with inflation, has in many ways made US inequality worse.

Today the American economy faces three big risks. First, a steeper European downturn, as a result of the excessive austerity and the euro crisis. Second, complacency that the economy will recover quickly without government support. Though every downturn comes to an end, that should not be of much comfort. Third, that we accept that an unemployment rate above 7 per cent is inevitable.

If my Cassandra forecast turns out to be wrong, stimulus can be cut. But if it turns out to be right, and we do too little, we will live to regret it.

We need Congress and the President to stop listening to “Washington Consensus” and the “main stream” economists that are preaching “austerity” that will only prolong the economic decline and increase poverty.