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3 posts from February 2013

02/11/2013

Some simple facts on the corporate income tax

By Steven Pressman

While corporations have become a bigger part of our economy, and partnerships and individually owned firms have shrunk as part of our economy, corporate tax receipts have fallen as a share of GDP over the past half century.

Roughly, the corporate income tax has fallen from 4%+ of GDP in the 1950s and 1960s (the best days for the US economy) to 2% more recently. Reducing the corporate tax burden does not seem to have had any big economic benefits. And the consensus among public finance economists is that the burden of the tax falls on shareholders (rather than being passed to consumers or workers). Yes, most of are shareholders to some extent because of our pensions or small stock holdings, but shares of stock are held disproportionately by the very wealthy.

So, increasing corporate taxes or cutting their ability to dodge taxes should hurt neither average Americans or the economy. And to the extent that they prevent cuts in Social Security, Medicare, Medicaid, unemployment insurance, and other programs, this will be a net economic plus. And the nearly 2% cut in corporate tax payments is around $300 billion per year that can go to either deficit reduction, tax breaks for low-income and middle-income households, or to develop important programs that exist in all other developed countries except for the U.S. (for example, paid parental leave).

A corporate tax fairness bill addressing some of these issues was introduced in the U.S. Senate last week by Bernie Sanders of Vermont and in the House by Jan Schakowsky of Illinois. In a reasonable world, it should receive enormous support and would get passed easily.

Alas, we do not live in that world. We live in a world where death and taxes are inevitable because tax reform and gun control legislation can never get passed. Still, it is worth pressing for this legislation.

Steven Pressman is Professor of Economics and Finance at Monmouth University in Long Branch, NJ, USA. He is a trustee of the Association for Social Economics and a member of the editorial board of Forum for Social Economics, as well as the North American editor of Review of Political Economy and associate editor/book review Editor of Eastern Economic Journal. He is author/editor of more than a dozen books, including Fifty Major Economists, 3rd ed. (Routledge, forthcoming in 2013), and can be found on Facebook and Twitter.

02/07/2013

Forum for Social Economics, 41/2-3 (July-October 2012)

FseFollowing are the contents (with abstracts) of the latest issue of Forum for Social Economics (41/2-3, July-October 2012).

Editorial

Economic Development, State, Policy, and Social Well-Being – Welcoming the Forum's Double Issue 2–3/2012, Wolfram Elsner

Economic Policy Alternatives, Social Security, the Living Wage, and Social Well-Being

A New Economic Strategy for the USA: A Framework of Alternative Development Notions, Nikolaos Karagiannis and Zagros Madjd-Sadjadi

This paper seeks to provide a new economic strategy for the United States while considering a range of development-related impediments to the country’s recent economic performance. It is argued here that strategic industrial policy needs to come to the center stage if local production growth, competency upgrading, and competitiveness improvement are to be aggressively pursued. The first section outlines the present context of the US economy by discussing economic and socio-cultural aspects. The second main section frames an alternative development paradigm for the United States. Policy recommendations are discussed in the third section. Some brief conclusions end the paper.

The Living Wage, Economic Efficiency, and Socio-Economic Wellbeing in a Competitive Market Economy, Morris Altman

Conventional economic wisdom views a Living Wage as costly in term of economic efficiency and competitiveness. I argue, based on x-efficiency theory, that higher wages need not cause any economic harm and can, on the contrary, generate higher levels of material wellbeing. Higher wages can be expected to induce x-efficiency and technological change cost offsets. In this context, an effective living wage, one that is above some subsistence minimum, can have a net efficiency effect on the economy. Therefore, a living wage greater than the wage rate generated by the free market cannot be predicted to generate economic harm. With the institutional parameters in place to realize a living wage, the economic pie can be expected to grow to accommodate the living wage.

On the Pro-Social Security Rhetoric, Rojhat B. Avsar

We propose to reframe Social Security to offer a coherent anti-privatization rhetoric that has not been fully provided in the contemporary literature. The dissatisfaction that motivated this study centers on the observation that the prevalent anti-privatization rhetoric exposes the drawbacks of Private Retirement Accounts (PRAs), but this rhetoric itself doesn't satisfactorily explain why the current Social Security system is more desirable. In reframing Social Security, we will follow a two-stage strategy. First, we will articulate the desirability of Social Security grounded in the function it serves in a way PRAs are not suited for serving: being a social income insurance scheme whose provision inherently favors the least fortunate in a Rawlsian fashion. Second, we will concentrate how Social Security provides this non-market choice by drawing on the unique resources not entirely available to the market.

Merit Goods and Basic Paradigms of State Activity

Does Libertarian Paternalism Reconcile Merit Goods Theory with Mainstream Economics?, Stefan Mann and Miriam Gairing

In the wake of Musgrave's move to question the absolute hegemony of individual preferences for normative economics in the 1950's by propounding the existence of merit goods, a recent book by Thaler and Sunstein is now making a similar claim under the label of ‘libertarian paternalism’. This paper tackles the question of why the framework of libertarian paternalism has received a so much more friendly reception among economists than the theory of merit goods. The main reason is a better foundation, not only for the conditions under which paternalism may be justified but also for the tools that should be applied, utilizing transaction cost theory.

Globalization and State: Four Paradigmatic Views, Kavous Ardalan

Any adequate analysis of globalization and state necessarily requires fundamental understanding of the worldviews underlying the views expressed with respect to the nature and role of globalization and state. This paper is based on the premise that any worldview can be associated with one of the four basic paradigms: functionalist, interpretive, radical humanist, and radical structuralist. It argues that any view expressed with respect to globalization and state is based on one of the four paradigms or worldviews. It, therefore, discusses four views with respect to the nature and role of globalization and state which correspond to the four broad worldviews. The paper emphasizes that the four views expressed are equally scientific and informative; they look at the nature and role of globalization and state from a certain paradigmatic viewpoint. Emphasizing this example in the area of globalization and state, the paper concludes that there are opportunities for each paradigm to benefit from contributions coming from the other three paradigms.

Comprehensive Heterodox Methodological Critique, and Experimental Economics

Guy Routh's Heterodox Critique of Economic Methodology, Robert W. Dimand and Robert H. Koehn

Guy Routh was an outstandingly incisive and severe critic of mainstream economic theory's abstraction, class bias, and empirical irrelevance. Routh's The Origin of Economic Ideas (1975 1989), with such chapter titles as “The Preposterous Origins” and “From Propaganda to Dogma”, was described by Robert Heilbroner as “irreverent, original, controversial, and delightful” while J. K. Galbraith expressed his “utmost enjoyment” and “utmost approval” of the book. Routh's trenchant critique of mainstream theorizing and his vision of an empirically-grounded alternative have been largely forgotten since his death in 1993, but deserve the attention of heterodox and especially of institutionalist and social economists.

Competition for Power and Altruism, Luigi Bosco

The paper analyzes the trade-off between power and altruism by using an experimental framework which involved a group of experimental agents, undergraduate students of the University of Siena. The results show that the introduction into the experimental structure of a tournament for the power appreciably altered the behaviour of agents. More specifically the degree of altruism, measured by the dictator offers, significantly decreased when the agents were able to trade altruism for power. The results were more clear-cut and robust in the case of the dictator game, but also in the case of the ultimatum game the introduction of the tournament for power altered the behavior of subjects. A significant gender effect emerged.

02/06/2013

Review of Social Economy, 70/4 (December 2012)

RSEFollowing are the contents (with abstracts) of the latest issue of Review of Social Economy (70/4, December 2012).

Presidential Address

Social Economics and Evolutionary Learning, Zohreh Emami

The major premise of this paper is that social and individual well-being depends significantly on people's capacity to learn and unlearn in communication with each other. This paper builds on social economic traditions that see communication and conversation as evolutionary generative and adaptive mechanisms through which individual and social learning occurs. Drawing on educational psychology and organizational behavior scholarship, five dynamic processes of conversational learning are introduced with the contention that they can help social economists understand at a micro level more deeply and more concretely how learning happens in the give-and-take of conversation. The paper explores the role of the state, organizations, and communities in fostering individual freedom and dignity, human rights, and economic democracy and concludes that the investment of value in people and their capability for purposeful action as social economic stakeholders can be enhanced through conversation as learning.

Articles

Pragmatism to Dogmatism: The Laissez Faire Myth and the Disabling of the American Fisc, Richard V. Adkisson & Mikidadu Mohammed

The authors argue that the recent upsurge in anti-tax sentiment has its roots evolving social conditions and adherence to the laissez faire myth. Content analysis reveals that political anti-tax rhetoric increased in the late 1970s and early 1980s, a time of social distress in the US. This increased political attention provided a rhetorical punctuation whereby a substantial portion of Americans moved toward a much more dogmatic adherence to the laissez faire myth. The result has been to convert the laissez faire myth into a disabling myth that severely limits open discussion of fiscal issues and reduces the options in public finance decisions.

Do Flexible Labor Markets Indeed Reduce Unemployment? A Robustness Check, Robert Vergeer & Alfred Kleinknecht

Nickell et al. (2005) have frequently been cited as empirical evidence that labor market rigidities cause high unemployment. We find that their model is not robust. Leaving their database unchanged and changing three details in their estimation procedure, it turns out that several policy-relevant coefficients change sign or significance. We conclude that their claim from Non Accelerating Inflation Rate of Unemployment (NAIRU) theory that labor market rigidities cause unemployment is rather shaky. There is a remarkable discrepancy between weak empirical results and sweeping conclusions by policy practitioners with respect to the call for deregulation of labor markets.

Speaker's Corner

Opportunities for Smallholders from Developing Countries in Global Value Chains, Clemens Lutz

The current policy debate on opportunities for African smallholders in agricultural markets focuses on the need for proper institutions at the market level or governance in the global value chain (GVC). Both discussions neglect insights from strategic management. We argue that successful inclusion of smallholders in GVCs requires the deployment of strategic resources and capabilities in the farming systems. The consequence of this argument is that the ‘inclusion’ of smallholders in GVCs only makes sense if they have the opportunity to create strategic resources.

Exchange

Interrogating Sickonomics, from Diagnosis to Cure: A Response to Hodgson, Dimitris Milonakis & Ben Fine

Hodgson's review of our books argues against us that marginalism neither adopted methodological individualism nor excluded the social from economics. Thus, he finds a partial solution to sickonomics in abandoning the term methodological individualism and using both structures and individuals as analytical starting point(s), revisiting Marshallian marginalism dressed up in socio-institutional clothing. He also denies any relationship between the current malaise in economics and the marginal revolution, as we claim, focusing exclusively on institutional developments since the Second World War. We show Hodgson is either partial or wrong on all of these counts. Firstly, his alternative to methodological individualism is untenable. Secondly, institutions, although implicitly present in Marshallian and Walrasian economics, play no substantive analytical role and as such are superfluous. Finally, although institutional factors help explain the sickness of modern economics (in addition to socioeconomic, ideological, political, and intellectual factors), the intellectual roots of this decay lie in the conceptual framework established around the marginal revolution.

From Social Theory to Explaining Sickonomics: A Response to Dimitris Milonakis and Ben Fine, Geoffrey M. Hodgson

This response shows that, in their reply to my critique of their work, Ben Fine and Dimitris Milonakis generally maintain the impression that there is a single, widely accepted definition of methodological individualism, but they do not identify it. They assert that social structures (undefined but seemingly specified to exclude law and institutions) have ‘analytical priority’ and logically (but tacitly) imply that individuals should have no part in the analysis of social or economic phenomena. They mischaracterise Hodgson's (2011) position on Marshall by quoting just one part-sentence out of context. Fine, Milonakis and Hodgson agree that the intellectual roots of the predominance of technique over substance in modern economics can partly be traced to the 1870–1900 period, but disagree on what they are.

Book Reviews

Aftershock: The Next Economy and America's Future (Robert B. Reich, review by James A. Buss

Sustainable Development: Capabilities, Needs, and Well-being (ed. Felix Rauschmayer, Ines Omann, and Johannes Frühmann), reviewed by Michael F. Watts

Relationship Economics: The Social Capital Paradigm and Its Application to Business, Politics, and Other Transaction (Lindon J. Robison & Bryan K. Ritchie), reviewed by Stephen P. Barrows

Adam Smith: An Enlightened Life (Nicholas Phillipson), reviewed by Marvin T. Brown

The Economics of Social Responsibility: The World of Social Enterprises (ed. Leonardo Beccheti and Carlo Borzaga), reviewed by Rita Yi Man Li

Education and Inequality Across Europe (ed. Peter Dolton, Rita Asplund, and Erling Barth), reviewed by Xinyue Ye