5 posts categorized "Commentary"

02/12/2016

Irene van Staveren on Anthony Atkinson’s Inequality: What Can Be Done?

AtkinsonVarious important books have been published recently about economic inequality, from Piketty on wealth to Wilkinson and Pickett on social impacts. Tony Atkinson's book Inequality: What Can Be Done? focuses on the characteristics of income inequality and what can be done about it.

First, Atkinson presents data on household income inequality from the Luxembourg Income Studies data (LIS). A country comparison shows that the Gini coefficients of both the US and the UK are relatively high, above 35, with many continental European countries showing figures between 25 and 30. He also points out that the Gini coefficients have been on the rise since the 1980s in most Western countries.

Second, he presents a long list of policy proposals. Let me share a few with you, which are of particular interest for social economics. On taxation, he proposes to raise the marginal income tax rate to 65 percent and to introduce a substantive earned income discount. Furthermore, he comes with an innovative proposal on inheritance taxation: no longer on the giver but on the receiver, with a lifetime progressive capital taxation. This is an incentive to leave one’s wealth behind for the poorest relatives, charities or other goals, rather than for the richest relatives. Next, he proposes a substantial child benefit, to be taxed as income, so that the rich benefit much less than the poor. Moreover, he pleas for a basic children’s income and a basic capital endowment for all at adulthood. And he insists on a one percent development aid of GNP.

On employment, he argues for a target for unemployment reduction in the UK, as in the US, as well as a minimum wage as a living wage, as in the Netherlands, and a public employment guarantee, as in India.

Atkinson's argumentation is smart. He demonstrates the history of his proposals, with old and new claims by politicians, activists, and even business leaders (UK premier league football clubs, such as Chelsea). And he argues that “there is not just one economics” (p. 5), showing a variety of economic arguments, including Kenneth Arrow’s argument that ethical codes should be part of businesses behavior. Of course, Atkinson criticizes the break-down of the welfare state in many Western countries, with a reduction in benefits and coverage for disadvantaged groups. But he does not fall into the trap of proposing increasing public expenditures in times where many governments seek to reduce public debt and budget deficits. Instead, his fiscal proposals are all revenue-neutral. Hence, the political feasibility should not be a constraint. I find this part of his policy proposals the smartest one of all.

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IreneIrene van Staveren is professor of Pluralist Development Economics at the Institute of Social Studies of Erasmus University Rotterdam, the Netherlands. She was awarded the 2014 Lifetime Achievement Thomas Divine award by the Association of Social Economics.

10/02/2015

Irene van Staveren shows the value of introducing alternative economic thinking to students

Irene bookI am currently teaching with my own new textbook Economics after the Crisis. I make use of blended learning techniques such as quizzes, flipping the classroom with YouTube videos with my slide shows and voice-over, and visual one-page summaries of each chapter on Facebook page of the book. This all frees up lots of time for classroom discussions. In this blog I would like to share a few of these discussions with you.

Student A, from the UK, asks why Margaret Thatcher was so much in favour of markets but did not want the government to regulate markets to ensure fair competition. Others seemed equally puzzled: if markets have a tendency to lead to oligopolies, they move away from the ideal of full competition, and hence, they need the state to ensure that it does not happen. Of course, they are right. Not bad for students of an introductory course. It is, of course, the same issue that Joan Robinson addressed when analysing real-world markets. My answer, though, is not Post-Keynesian but social economic. The tendency of markets to allow, or even support, winners over losers to accumulate market shares, through mergers and acquisitions, lobbying, and explicit or implicit price agreements, is enabled by a dominant social norm among economists as well as policy makers that markets are good and the states are bad, when it comes to efficiency and wellbeing and growth. This leads the discussion towards the dominant policy paradigm of neoliberalism in the world since Thatcher and Reagan.

EC Matrix CH 01[1]The students had to write a mini-essay about the dominant policy debate in their countries. Here is what student B, from Mexico, answered. The indigenous people aligned in the Zapatista movement regard nature and earth as a mother. Hence, the farmers are in a caring relationship with the land and for this reason resist production for commercial firms and the market beyond their own community. Only by producing for their own community they can maintain this relationship with the mother. They therefore also resist the state, which offers to provide social security. The Zapatista farmers understand that by accepting this, they are drawn into the national and international market economy, which will undermine their caring relationship with mother earth.

I found this a nice example of how local communities resist not just neoliberalism but even the state in a neoliberal policy environment—their distrust is most likely justified.

Student C, from Indonesia, offered a very different example, but also from a social economics perspective. He argued for keeping the fuel subsidy for the poor, whereas neoliberal policy makers want to abolish the fuel subsidy. His argument is that fuel is a key commodity for the poor and the subsidy helps them to purchase this (for example, fuel for cooking and transport). Here, it is the inequality and poverty argument that was used from social economics, to support a redistributive policy. Even when it may not be friendly to mother earth...

My students' feedback teaches me that even though it is not easy to teach four economic theories at the introductory level, they quickly see the relevance of it for their own economic context. If only to be able to see alternatives to dominant policies, rightly or wrongly.

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IreneIrene van Staveren is professor of Pluralist Development Economics at the Institute of Social Studies of Erasmus University Rotterdam, the Netherlands. She was awarded the 2014 Lifetime Achievement Thomas Divine award by the Association of Social Economics.

03/18/2015

Economics After the Crisis, by Irene van Staveren

Irene bookA year after the fall of Lehman Brothers, The Economist's headline proclaimed the end of modern economics. What has happened since? Well... almost nothing.

Mainstream and near-mainstream economic textbooks still sell like before. And INET has supported some initiatives that eliminate the rough sides of neoclassical thought and neoliberal policy advice. Very laudable initiatives, with, for example, Wendy Carlin's work on developing a new undergraduate curriculum CORE. But students of economics are not satisfied with these minor changes, so many years after the start of the financial crisis. Their Rethink Economics petition demands more fundamental changes to textbooks.

As a supporter of every single petition, pamphlet, op-ed, and plea for pluralism in economics before and after the crisis, I decided three years ago that I should practice what I preach. The result is Economics after the Crisis, a pluralist introductory textbook published by Routledge in January 2015. It offers a tool to understand the basics of economics from four theoretical perspectives either for use in the classroom or for self-study alongside a standard course book. The theories are presented in every chapter, micro and macro. And from interdisciplinary and close to real-world experiences to mathematically in an idealized world of perfect markets and agents following the single ethical guide of utility maximization. The book presents social economics, institutional economics, post Keynesian economics, and neoclassical economics and thereby shows that almost no economic concept or tool is theory-neutral. If only this message gets across, the book will have accomplished already more than I could hope for.

The window of opportunity to reform economic teaching is almost shut. Banks pass stress tests in Europe and the US while still being too big to fail. Nobel Prizes are awarded to economists who show no effort at all in rethinking economics. And economic policies ignore the danger of continuously increasing private and public debt, while shifting the consequences of such myopia on disadvantaged groups and whole populations.

If it is not now, we may have to wait for the next crisis to change economic thinking and teaching. I truly hope that the combined efforts of critical economists, activist students, and courageous teachers will help to make the change. We cannot afford to standby any longer.

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IreneIrene van Staveren is professor of Pluralist Development Economics at the Institute of Social Studies of Erasmus University Rotterdam, the Netherlands. She was awarded the 2014 Lifetime Achievement Thomas Divine award by the Association of Social Economics.

03/11/2013

Is Jeffrey Sachs taking the name of Keynes in vain?

By Steven Pressman

Jeffrey Sachs has written an unbelievably bad piece for the Huffington Post. The piece is a follow-up to his Washington Post op-ed with Joe Scarborough entitled “Deficits Do Matter” as well as Krugman’s response to this op-ed on his New York Times blog.
 
I don’t really want to delve deeply into the issue of whether or not a short-term stimulus will contribute to economic growth and employment. That is an issue on which I will not likely convince Sachs or opponents of fiscal stimulus.
 
What I mainly want to take issue with is using the name of Keynes in vein, and presenting a misleading view of what Keynes wrote to argue against the sort of Keynesian stimulus that Keynes himself clearly supported. It is hard to read The General Theory, especially when thinking about the context in which it was written, and not see that Keynes was proposing an active policy of tax cuts and government spending in order to increase demand and put people to work. Many other writings by Keynes from the early 1930s (and even earlier) make the same point about fiscal policy. It is clear where Keynes stands on deficits in the midst of high unemployment; to imply otherwise is to do Keynes a grave injustice.

Sachs starts by quoting Keynes on the need for structural policies to deal with the unemployment problem facing the UK in 1937. In an article in The Times, Keynes wrote in 1937: "We are in more need today of a rightly distributed demand than of a greater aggregate demand." Then, adopting the debating technique of the non-sequitur, Sachs accuses Krugman of holding several views that he calls “crude Keynesian” and refers to some of Keynes’s writing that seems to support this. He then moves on to critique some elements of this crude Keynesian economics.
 
First, the one sentence quotation from Keynes is not a clarion call for structural policies; nor is it an admission that the UK was experiencing structural rather cyclical unemployment (it was written when unemployment in the UK was 12%). For a long time Keynes had supported policies that would increase demand through redistribution—policies such as family or child allowances financed by higher taxes on business profits. His 1930 article in the Political Quarterly, "The Question of High Wages," makes the case for such redistributive policies in order to raise demand. This piece also advocates greater government spending on social insurance programs, pensions and "useful expenditures" such as health, education and travel.

All this is not really much different from what Keynes set forth in The General Theory. To argue that Keynes abandoned Keynesian demand policies for structural policies based on this single sentence fails to do justice to Keynes. The sort of policies he supported in 1937 were the sort of policies he had supported for years—running large government deficits in times of unemployment (and surpluses in good economic times) in the belief that unemployment was cyclical in nature. His preferred solution was always the sort of public investments that most economists (including Jeff Sachs) advance and support. But Keynes was a realist. He knew that when, for political reasons, we could not build schools and hospitals, or invest in pre-school, we would have to print money and bury it in abandoned coal mines—the deficit be damned. Keynes was focused on a practical means to increase demand and employment; he wanted the biggest bang in terms of jobs for the lowest buck (government deficits). If Sachs would only read some Keynes, or some good commentaries on Keynes (the chapter on Keynes in my book 50 Major Economists is a simple and easy place to start), he would at least get Keynes right.
 
Sachs’ rejection of crude Keynesian economics because it depends on a particular value of Keynesian multipliers and assumes their consistency over time is even more disturbing. It is also really beside the point. It does not matter if the spending multiplier is 1.5 or 1.3 or even 1.7. And it does not matter if the value of multiplier changes or varies within this range, as long as fiscal policy does what it is supposed to do and creates jobs. In fact, even if the government spending multiplier were 1, and even if it varied substantially around its mean value of 1, each dollar of government spending would increase GDP by one dollar (on average) and more jobs would be created as a result. There is absolutely nothing in Keynes and nothing Keynesian that requires a large and stable multiplier. Again, some familiarity with Keynes and Keynesian economics before writing about them is the least one would expect from an economist teaching at Columbia.  
 
This would somewhat excusable if the debate were mainly a matter of abstract theory. But much is at stake here. At this point in time, the choice for both the US and Europe seems relatively simple. Are we to have a stimulus program in the face of high unemployment, as Keynes advocated? Or are we to have austerity and extremely high rates of unemployment? Do we have Keynesian economics or do we have de-Keynesian (pardon the pun) economics due to Jeff Sachs?

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.

02/11/2013

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.