Does globalization erode social safety nets?

Does globalization erode social safety nets?

via Dani Rodrik's weblog de Dani Rodrik le 11/12/08

Economic theory and intuition suggest that as economies become more globalized, the ability of governments to undertake redistributive policies and to engage in social spending erodes. After all, a large part of the tax base--corporations, financial intermediaries, and skilled workers in particular--become internationally mobile and can evade taxes needed to finance those public expenditures.

This is important because historically countries that are more exposed to international trade have actually had larger public sectors, in part to insulate their citizens from shocks originating from abroad. This fact, along with the lack of an obvious decline in the overall tax take in major advanced economies, has led many observers to think that the hypothesized decline of the welfare state has not in fact taken place.

Giuseppe Bertola and Anna Lo Prete have now brought new evidence to bear on this question, and their findings bear out the simple intuition. As they put it, "as technological progress and multilateral trade liberalisation have made borders less of a barrier to economic activity, the scope of redistribution policies has become smaller." Here is the chart that goes along with their result:

Another interesting argument Bertola and Prete make is that private finance seems to have partly filled the whole left by public transfers. The claim is that more developed financial markets are able to supply the insurance and consumption-smoothing provided traditionally by the welfare state in very open economies. They use the share of house prices financed by mortgages as an indicator of financial development.

I am sure this argument made a lot more sense a year ago, when the authors were doing their original research, than it does now. It will take a while until we think of finance, and housing finance in particular, as a source of insurance and stability.

Bertola and Prete are aware of this of course. So they conclude thus:

Financial markets are indeed in trouble and, if our perspective on past developments is correct, their fragility does not bode well for globalisation. The breakdown of private financial markets excites calls for stronger redistribution. If redistribution is national (as it has to be as long as politics are national), it will only be sustainable if national borders become less permeable to economic activity.

Indeed. Welcome back to the political trilemma of the global economy.

"The Rising Tide Tax System"

En particulier pour le concept, cité à la fin, de "equal marginal sacrifice", qui est une justification moralement intéressante de la progressivité de l'impôt

"The Rising Tide Tax System"

via Economist's View de Mark Thoma le 14/12/08

This is one of the entries in the NY Times Magazine's annual Year in Ideas:

The Rising-Tide Tax System, by Stephen Mihm, NY Times: In the last 20-plus years, overall economic growth in the United States has come at a cost: rising income inequality, which in the past few years has hit levels not seen since the late 1920s. A more progressive income tax, introduced during the New Deal, helped mitigate the problem, and it remains a likely prescription today. Yet a team of economists that includes Robert Shiller of Yale University and Leonard Burman of the Tax Policy Center recently released a paper in which they propose another way of "spreading the wealth"...

Under the proposal, the tax code would automatically be rewritten at the end of each year to reflect any changes in the relative share of national income earned by each income bracket. For example, if one year the nation's top earners saw their share of national income rise while people at the bottom saw their share grow at a slower rate (or decline), the following year's tax rates would be automatically rewritten to compensate for the new inequality. This would keep everyone's share of after-tax income at the earlier level.

The ... proposal would work both ways: if the rich saw their share of the nation's income grow more slowly relative to people lower down the economic ladder, the tax system would become less progressive...

The name of the proposal — the Rising-Tide Tax System — is an allusion to John F. Kennedy's claim in 1962 that "a rising tide lifts all boats," a promise that general economic growth would benefit all members of society. Shiller argues that it's still possible to turn Kennedy's vision into a reality. "It's something we can engineer," he says.

This has attractive properties, and it may help us to avoid the concentration of bubble-inducing excess liquidity in the hands of relatively few people, but how do we know which baseline level of inequality to target?

Also, this approach leads to the idea that the only reason for progressive taxation is redistribution, but that's not the case. Concepts such as equal marginal sacrifice can be used to support a progressive structure, so even if there is no redistribution at all we may still want to have progressive taxes. Thus, before we can use this approach we'd have to decide (at least) two things - what is the level of inequality we are targeting, and what is the base level of progressiveness that we use. For example, if there is no change in inequality from previous years, does that mean taxes should be flat?

Skill-Based or Bubble-Based Wage Differentials?

La remise en cause de toutes les théories foireuses qui ont été ressassées ces dernières années pour justifier l'injustifiable a commencé. Exemple, le "high-skill wage differential"...

Skill-Based or Bubble-Based Wage Differentials?

via Economist's View de Mark Thoma le 07/10/08

Arindrajit Dube says there's a paper he wishes to write once the data become available:

Does Mispricing of Financial Assets lead to Mispricing of Human Capital?

Over the late twentieth century, the financial sector grew rapidly, and attracted higher skilled workers at an increasing rate. Existing work attributes this to growth in financial sector productivity, which raised the marginal product of higher skilled workers. In this paper, we investigate the role of mispricing of financial assets (from asset bubbles) in artificially increasing returns to skill in the economy in the context of a two sector general equilibrium model. A speculative bubble arises from heterogeneous beliefs due to overconfidence and short-sales constraints, and investors perceive an option to resell the stock to others with even greater valuations. If the financial sector is relatively more intensive in the use of skilled workers, this can lead to an inefficiently large portion of these workers going to finance, and an inefficiently high skill-wage differential. Using data from the United States over the 1980 to 2012 period, we show that (1) the growth in asset bubbles were particularly important in increasing the perceived marginal product of higher-skilled workers; and (2) with the sharp retrenchment of the financial sector following the 2008 financial crisis, perceived marginal products and wages of higher skilled workers fell substantially. Our evidence shows that a large part of the "skill biased technical change" identified by earlier researchers actually represents a mispricing of human capital due to inefficiencies in the financial market.

Bankers are criminals

Ha, le trickle down, cette bonne vieille lubie de la droite conservatrice américaine. Une victime bienvenue du credit crunch ? pas sûr...

Red Ink Trickling Down

via Financial Armageddon de panzner le 25/09/08

For many years, Republicans, in particular, have espoused the virtues of "trickle-down economics." This theory holds that "increases in the wealth of the rich are good for the poor because some of such additional wealth will eventually trickle down to the middle class and to the poor." (Wikipedia)

Since the credit bubble began to burst, however, we've seen a malignant variation of this phenomenon. Instead of wealth, red ink has been trickling down from the orifices of badly-run financial companies, undermining the economic wellbeing of a wide range of individuals and firms.

Among the victims, according to a CNNMoney.com report, "Credit Crunch Freezes Hiring, Expansion," are small businesses.

When small businesses can't get loans, job growth and economic expansion stall.

After 41 years in business, Hull Printing shut down its printing presses for good in March, laying off 19 workers and closing one of the oldest family-run businesses in Barre, Vt. The catalyst: Hull Printing's bank slashed its line of credit, kicking off a death spiral that led to the company's collapse.

"All of the equipment's gone and been liquidated," said Jon Hull, 32, whose grandparents started the commercial printing business in 1967. "The bank got all of their money back, but it left a lot of unsecured creditors that will never be paid back, including many other small businesses in town."

Hull's story is a familiar one to millions of small business owners across the U.S. who rely on credit lines and loans to fund expansion or help them recover from setbacks. In a National Small Business Association (NSBA) survey released this week, 67% of business owners polled reported being affected by the credit crunch in August, up from 55% in February. Additionally, 32% reported a deterioration in the terms of available bank loans, up from 27% six months earlier.

"If there is a squeeze on banks, even if only large investment banks, the repercussions can easily flow over into commercial bank loans," says NSBA President Todd McCracken. "Based on what history suggests, if banks have to pull back, they'll pull from small business loans first."

A small business cutback will have ripple effects on the larger economy - and on the jobs pool. Small businesses employ about half of all non-government employees in the U.S., according to Small Business Administration estimates. This year, small companies have been crucial in keeping the job-loss numbers from turning even grimmer: While bigger businesses shed workers, companies with fewer than 50 employees have reported a net increase in positions every month this year, according to ADP, which compiles a monthly employment report. In August, when overall employment fell by 33,000 jobs, small companies added 20,000 net new hires, according to ADP's estimates.

A credit crunch can force companies to make hard choices. "Sometimes there may not be enough work for key staff, so they'll face the choice of losing good people or hanging on to them until they catch the next wave," McCracken said.

In D'Iberville, Miss., Fayard's Grocery owner Rusty Quave is waiting to find out if he'll receive a deferral on loan payments that will mean the difference between staying in business and going under for his general store. For now, Quave has shortened the store's operating hours and temporarily stopped selling gas and diesel as he tries to cut his daily operating costs enough to stay afloat.

Stalled growth

Quave is also the mayor of D'Iberville, a town of 6,000. All around, he sees signs of economic development at a standstill. Shattered three years ago by Hurricane Katrina, D'Iberville responded with a comprehensive urban-development plan for rebuilding. The 60-page document is a blueprint for sustainable retail, residential and industrial development, but little ground has been broken because of the credit-market freeze.

"All the major developers can't come up with the financing," Quave said. "We're a district that has legal gaming. We have groups that have bought property and haven't been able to start."

The NSBA's president says Quave's situation is in line with others he's seen. "For a company that has a growth opportunity, you can still get funding, if you take a lot of energy and time and pull from different places. But companies not in a position to expand may lose money," he said.

While officials in Washington hash out the details of a proposed $700 billion bailout to address the financial-system crisis that began unfolding on Wall Street last week, business owners far from the financial markets' epicenter are already feeling the effects of banks' reluctance to risk new loans.

When entrepreneur Tim Trzepacz and his partner sought funding last year to expand their fledgling product-development company, Sprout Creation in Wayland, Mass., they had the benefit of sterling personal credit and years of experience and networking in their industry: Trzepacz is the former merchandising director at consumer-electronics retail giant Brookstone, where his partner, David Laituri, headed up design and engineering. They also had one product already on the market and generating sales, the Vers iPod dock, available at Target.com (TGT, Fortune 500) and other retailers.

Trzepacz pitched almost a dozen banks. One bank executive "told us we'd be approved unless they pulled our credit history and found out we'd committed mass murders," Trzepacz recalled. They were turned down. Over and over, the pattern repeated: Trzepacz and Laituri would meet with a bank and quickly win over their prospective loan officer. But when that advocate pitched the loan further up the bank hierarchy, it would be shot down. Banks wanted 18 to 24 months of cash flow and a demonstrated operating history before they would consider opening their coffers.

Bank of America (BAC, Fortune 500) agreed to extend the company a line of credit for around $80,000, but it was essentially a credit-card line, carrying interest rates of 15% and up. When Trzepacz sought a higher limit, Bank of America told him to look elsewhere.

In the end, Laituri found salvation literally on his doorstep. Laituri walked into a nearby branch of Middlesex Savings Bank, his local community bank, and asked if they'd be interested in talking about financing his business. Two weeks later, Trzepacz and Laituri had a $200,000 line of credit at interest rates less than half those they'd been paying to Bank of America - and they had a promise that as their business grew, their financing would grow with them.

Since getting that financing this spring, Vers Audio has added an employee, introduced new Vers models and created the next extension of its line, a combo iPod dock/alarm clock that will soon be on sale. None of that would have been possible without their line of credit.

"We came within 45 days of D-day," Trzepacz said. "We probably would have had to halt business operations, and our revenues would have been half what they'll be this year."

Other small businesses are stuck at a standstill. Take, for example, Jamaal Oldham of The Cheesecake Experience in Nashville. His four-person operation has been hand-delivering their specialty cheesecakes for years, and the business has been growing locally. The problem is that the team is still working out of Oldham's home kitchen. It needs funding to expand into a larger facility.

"Restaurants both in-state and out are interested in carrying our product, but we can't produce on a mass level because we don't have the facility," Oldham said.

He's confident he'll be able to pay back the $10,000 loan he's seeking. But banks are not budging, including the one that holds his company's accounts. "They told us to consider using credit cards, but with rates as high as 20%, I'm not really willing to go that route," Oldham said.

Oldham is now looking for cheesecake-loving investors, which may mean giving up partial ownership of the company: "I'd rather do that than deal with rates."

Weathering storms

Few entrepreneurs say they're looking for financing and loans to fund ordinary operations; business owners know that debt is expensive. What drives businesses to banks are growth plans or unexpected shocks.

For Hull Printing, the tipping point was an expansion gone wrong. About to outgrow a too-small building, the company owners began looking for new real estate. A sales manager pitched a broader expansion: Add new equipment and increase printing capacity, she said, and sales will jump.

That turned out to be inaccurate. Hull Printing added employees and bought advanced new printing presses, but sales stayed flat. Then the company's bank turned the vise tighter: It announced that by expanding without the bank's permission, Hull Printing had violated the terms of its existing loan. Although the company was making all its payments on time, Jon Hull says, the bank placed Hull Printing in default.

"Our banker knew, and chose not to tell us, 'you guys are risking a lot by making this expansion,'" Hull said. "Putting us in default instantly caused the interest rates on our credit lines to double, which only added fuel to the fire. Here we have a struggling company, and they're adding fees."

Hull worked with a business consultant to try to improve the business's cash flow, and he lined up a buyer interested in taking over the business. But as the company's credit dried up, so did its options and its daily operations. Eventually, closing down became inevitable.

Rusty Quave of Fayard's Grocery is trying to stave off that fate. Storms are his problem. Almost 30% of D'Iberville residents who left town after Katrina haven't come back. When Hurricane Gustav blew through last month, D'Iberville evacuated again, and Fayard's Grocery had no customers for several days.

Open every morning at 6 am, the store has temporarily pulled its closing time back from 9 pm to 3 pm. That's still enough time to feed the breakfast and lunch crowds, who gather at Fayard's for buffets of chicken, shrimp, crawfish, and other Gulf Coast specialties. Locked in negotiations this week with the Small Business Administration, which holds the note on the disaster-assistance loan Quave took out after Katrina, Quave is seeking a deferral. A one-year break on repaying his loans will give him the cash flow he needs to keep Fayard's Grocery open and his staff of 10 employed, he believes.

"We're not asking for free money, we're asking for loans and deferrals of payments to allow us to stay in business and keep being productive," Quave said. "My business is struggling but I'm hanging on. I'm not going to quit or file for bankruptcy, which would be the easy way out. You can't give up. We want to live here and keep our businesses going."

The collapsing American middle class

Une splendeur de pédagogie. Et l'explication indirecte de la crise majeure qui nous attend.

The collapsing American middle class

via Crooked Timber de Chris Bertram le 06/05/08

Surfing over to Charles Dodgson's site yesterday, I happened upon Elizabeth Warren's lecture on the squeeze on the American middle class since the 1970s. Then you could bring up a family on one income; now you can't. Then non-discretionary spending made up a smaller proportion of household spending; now, it dominates. Result: if a parent loses their job or gets sick, bankruptcy looms. I didn't expect to sit watching a YouTube video for whole hour but I was riveted by the story Warren tells with the consumption statistics.

I was kind of reluctant to blog this too. After all, there are others at CT who do sociology or economics or family policy and I don't do those things. And I'm not an American resident either. Still, it struck me as pretty compelling. I wonder how similar the change has been in the other OECD countries?

"Wages are Falling for Just about Everybody"

La période d'expansion qui vient de se clore (et pour un bon moment) a eu des caractéristiques particulières qui n'avaient jusqu'alors jamais été observées. La principale est bien sûr l'évolution des revenus moyen et médian, qui ont stagné ou diminué sur la période. Outre les implications philosophiques d'une telle forme de croissance, on commence à en percevoir l'impact macro-économique. La culture de la dette qui a embrasé les pays anglo saxons depuis dix ans doit dans une certaine mesureprovenir de cette stagnation du revenu disponible, que l'accroissment de la dette est venu compenser de manière artificielle

"Wages are Falling for Just about Everybody"

via Economist's View de Mark Thoma le 10/09/08

This is the type of issue the election should be about. The conversation has been steered elsewhere, the focus is no longer on the economy, and that's to the detriment of those who need help, especially if the connection between the economic policies of the Bush administration, policies that will continue under McCain-Palin, and the economic outcomes people have experienced are not fully recognized:

Wages are falling for just about everybody, by Kathy G.:

Chart from the Wall Street Journal

Today, the Wall Street Journal reports the sobering news that, since 2000, real wages have fallen for every educational group in America except folks with professional degrees (doctors, lawyers, and the like). All other groups, even those with master's degrees and Ph.D.'s, saw declining wages over this period. The WSJ piece is based on recently released Census data (you can find the most recent Census Bureau report on income and earnings here).

In recent years, the college earnings premium has decreased substantially. As the Journal points out:

In 1975, for instance, workers with college degrees earned 60% more per year on average than workers with high-school diplomas only, according to the 2006 Economic Report of the President.

Workers with a college degree saw their earnings premium grow steadily over the next quarter century, and by 2000 their average earnings were roughly double what workers with a high-school diploma made. Over the next four years the trend reversed: By 2004, workers with a college diploma only were earning about 80% more than high-school grads, on average.

The Journal article identifies globalization (including the outsourcing of both blue- and white-collar jobs) and rising health costs as possible causes for the decline in wages. One reason workers' wages aren't keeping up with inflation is that health care costs have risen dramatically in recent years, so employers are shelling out more for health coverage, and less in wages.

For most Americans, these data paint a fairly bleak picture of their economic prospects. About the only good thing I can say about this is that, given this economic climate, I find it almost impossible to believe that the Republicans triumph this November. The seven-year period during which wages have been in freefall just happen to be seven years in which a Republican was president and Republicans, for the most part, controlled Congress. There's no way in hell that the Republicans should be able to get away with this. If, in spite of everything, they end up winning this fall, it will be the con job of the century.

I'm guilty of this too with recent side trips to discuss elitism and other cultural issues, but can we steer the conversation back to the issues that are important? Can the press and everyone else stop fanning the flames of side issues that are nothing but a distraction from what matters to struggling households? It's time to change to conversation, to go on the offensive with these kinds of issues, but how? My opinion is that there's only so much we can do, it's up to the campaigns to set the national conversation, and right now the Democrats are in response mode - playing defense - rather than setting the conversation by aggressive attacks on Republican economic policy, attacks that make it clear how those policies have worked to the detriment or simply ignored the needs of typical households. You can win playing defense, especially if you are already way ahead, but most of the time it's offense that scores the big points.

New Census Data on Poverty, Income, and Health Insurance

L'analyse ci-dessous résume bien les questions qu'ont soulevées, aux USA, les caractéristiques particulières de la reprise 2001/2007. Les chiffres sont moins marqués en France (même si la croissance a été inférieure sur cette période à celle des US), mais je crois que les tendances de fond sont applicables à l'ensemble des pays occidentaux. Il semble en effet que, lors de cette dernière période de croissance, la totalité (US, UK) ou une large partie (Europe) des gains réalisés par l'ensemble de l'économie aient été distribués à un minorité. Ce qui ne va pas sans poser d'intéressantes questions...
L'explication néo-classique ou conservatrice du phénomène (une prime à l'éducation accrue par le développement technologique) semble difficile à réconcilier avec le caractère de la distribution. Si l'essentiel des gains avait été réalisé par 10 ou 15% de la société, cela aurait été crédible. Lorsque les gains s'accumulent au 1%, et en réalité au 1/1000, il doit y avoir autre chose.Quoi qu'il en soit, si vraiment cette distorsion résulte d'une prime à l'éducation, la conclusion en terme de politique publique est assez pessimiste : on peut en effet imaginer que des efforts d'éducation amènent 30% d'une population au niveau des 10% supérieurs, mais 30% au niveau du 1% ou 1/1000 supérieur ? No way. Ce ne sont pas des efforts sur le niveau général d'éducation qui augmenteront le nombre (et donc la dispersion des gains) des gestionnaires de hedge funds, entrepreneurs, CEOs, banquiers d'affaires ou détenteurs de capital. Qu'est ce qui entraînera une inversion de la tendance ou, si elle ne s'inverse pas, quelles sont les conséquences potentielles pour la démocratie ?

New Census Data on Poverty, Income, and Health Insurance

via Economist's View de Mark Thoma le 26/08/08

Here's a round up or reactions to the Poverty, Income, and health Insurance Report released today by the Census Bureau:

Statement by Robert Greenstein on the New New Census Bureau Data on Poverty, Income, and Health Insurance, CBPP: ...[T]he new Census data are disquieting. Though 2007 was the sixth (and likely the final) year of an economic expansion, poverty was significantly higher, the median income of non-elderly households significantly lower, and the number and percentage of Americans who are uninsured substantially greater than in 2001 — even though the economy was in recession that year.

This is unprecedented. Never before on record has poverty been higher and median income for working-age households lower at the end of a multi-year economic expansion than at the beginning. The new data add to the mounting evidence that the gains from the 2001-2007 expansion were concentrated among high-income Americans. ...

In addition, the number of children living in poverty jumped by 500,000 to 13.3 million, and the child poverty rate climbed from 17.4 percent in 2006 to 18.0 percent in 2007. There was some welcome news on child health insurance – the number of children lacking health insurance declined in 2007, but it remained 400,000 above the number of children who lacked insurance three years earlier, in 2004.

The data also show that employer-based health coverage — and private health coverage in general — continued to erode in 2007, and that all of the improvement in health care coverage in 2007 was due to more Americans obtaining coverage through government health insurance programs, principally Medicare and Medicaid.

Data for 2008 Expected to Be Unfavorable The data for 2007 are of particular concern given that the economy is now in a slowdown, and poverty is almost certainly higher now — and incomes lower — than in 2007. ... This suggests that significant pain may lie ahead for many Americans. ...

Paul Krugman summarizes the significance of the implications of the Census data:

About that Bush Boom …, by Paul Krugman: The 2007 income, poverty and health insurance numbers are out. As far as I can tell on a first read, there's nothing deeply surprising. Still, they represent a landmark — and not in a good way.

The key point is that 2007 was the end of an economic expansion — whether or not the NBER declares a recession, the employment situation, which is what matters to most people, has deteriorated sharply this year. So 2007 was as good as it got in this cycle. Yet median household income was lower than in 2000, while both the poverty rate and the percentage of Americans without health insurance were higher.

In short, the economic policies we've been following just aren't working.

Is the bad economic news all Bush's fault? No, of course not — but remember, the key argument of the right has always been that tax cuts and deregulation would produce good news, a rising tide that raised all boats. Boy, has that not happened.

But remember, we're just a nation of whiners.

Michael Mandel notes the bad news for recent college graduates:

No Income Gain for Young College Grads, by Michael Mandel: The latest income distribution numbers are out from the Census Bureau. ...

For my part, I'm back to my regular business of being concerned with young college grads—the ones who don't have advanced degrees. Basically, the last numbers show almost no change between 2006 and 2007 (as the chart below shows). Young college grads still have not made back their losses from the earlier part of the decade. ...

Jared Bernstein at the EPI echoes the above:

Income Picture, by Jared Bernstein: [See also..., Overall health insurance coverage rises, but masks decline in private coverage.] ...While last year's overall income gains are good news, the longer-range view is quite different. The Census figures show that the economic cycle that began in 2000 and ended late last year was one of the weakest on record for working families, despite strong overall economic growth during the same period (see Table 1 and Figure 1). ...

Looking at the full cycle across economic peak years—a more useful measure in evaluating economic performance—reveals that household income was no higher in 2007 than in 2000, the previous peak. Given rising joblessness and declining real wages, next year's numbers will certainly be worse. ...

... The economy of course expanded in the 2000s, but that growth clearly failed to reach most households, a dynamic that implicates growing income inequality. ...

Next, Brad DeLong

Barack Obama on the Income-Poverty-Health Release, by Brad DeLong: Statement From Senator Obama on the Census Income, Health Insurance and Poverty Numbers

Today's news confirms what America's struggling families already know – that over the past seven years our economy has moved backwards. We have now lived through first so-called economic 'expansion' on record where typical families saw their incomes fall, and working-age households lost more than $2,000 from their paychecks. Another 816,000 Americans fell into poverty in 2007 – including nearly 500,000 children – bringing the total increase in Americans in poverty under President Bush to 5.7 million. And on Bush's watch, an additional 7.2 million Americans have fallen into the ranks of the uninsured. This is the failed record of George Bush's economic policies that Senator McCain has called 'great progress.' While Senator McCain is promising four more years of the failed Bush economic policies, my economic plan will restore bottom up economic growth that benefits all Americans by cutting taxes for working Americans, providing affordable, accessible health care for all, and investing in new energy, education and infrastructure so we can create millions of good jobs here in America," said Senator Barack Obama.

Highlights from the Census report:

• Between 2000 and 2007, median income for working age households fell by $2,176. When elderly households are included, median income declined by $324 over the same period. This is the first economic expansion on record where typical households have seen their incomes decline. Under the Clinton Administration, median household income increased by $6,200.
• African American household income fell by $1,804 between 2000 and 2007; Hispanic household income fell by $1,256 over the same period...
• An additional 816,000 Americans fell into poverty in 2007, bringing the total increase in Americans in poverty under President Bush to 5.7 million.
• 500,000 children fell into poverty in 2007. There are 1.7 million more children living in poverty than in 2000.
• Between 2000 and 2007, an additional 7.2 million Americans have fallen into the ranks of the uninsured. This is the largest increase in the number of people without health insurance of any Presidential Administration on record.
• The share of Americans with private health coverage fell from 67.9% in 2006 to 67.5% in 2007. This share has fallen every year that President Bush has been in office, declining a total of 5 percentage points since 2000.
• 940,000 African Americans have lost health insurance since 2000, along with 3 million Hispanics

Mathew Yglesias emphasized the importance of the public sector as a health insurance backstop:

Public Sector to the Rescue, by Mathew Yglesias: Today's Census numbers show a slight downtick in the proportion of Americans who lack health insurance. This, Jonathan Cohn notes, despite a continued decline in the number of people with private sector health insurance. "The reason the overall numbers look good is rising enrollment in public insurance programs, particularly Medicaid." He also notes that when you peer into the numbers, the state with the largest overall two-year increase in health insurance rates is Massachusetts, which has adopted the most aggressive health care reform agenda of any state and serves as a kinda sorta model for what progressive reform at the federal level — especially something authored by Ted Kennedy — might look like.

And, finally, one more from Brad DeLong

Income and Poverty Over the 2000-2007 Business Cycle, by Brad DeLong: 2000-2007: the first business cycle during which median household income in America falls from peak to peak. ...

http://www.census.gov/prod/2008pubs/p60-235.pdf

It's not all George W. Bush's fault, but I can think of a number of things he did to hurt and not a damned thing he did to help. ...

Sur l'impact de la taxation des gains en capital

Au détour d'un allumage par Brad de Long de la NR, qqes arguments intéressants sur l'impact des variations de l'imposition sur les plus values.

Thomas Sowell Is the Stupidest Man Alive

via Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong de Brad DeLong le 14/08/08

Someday the writers of National Review will realize that the incompetence of their economic coverage is one reason for the shredding of their own professional reputations. But that day is not yet.

Thomas Sowell

Thomas Sowell on Obama on National Review Online: The question, incidentally, was why Senator Obama was advocating a higher capital-gains tax rate when experience has shown that the government typically collected more revenue from a lower capital-gains tax rate than from a higher rate.... Economists may say that higher capital-gains tax rates can translate into lower levels of economic activity and fewer jobs, but Obama will leave that kind of analysis to the economists...

Congressional Budget Office:

Congressional Budget Office: Because taxes are paid on realized rather than accrued capital gains, taxpayers have a great deal of control over when they pay their capital gains taxes. By choosing to hold on to an asset, a taxpayer defers the tax. The incentive to do that -- even when it might otherwise be financially desirable to sell an asset -- is known as the lock-in effect. As a consequence of that incentive, the level of the tax rate can substantially influence when asset holders realize their gains, as can be seen particularly clearly when tax rates change.... For instance, the Tax Reform Act of 1986 boosted capital gains tax rates effective at the beginning of 1987. Anticipating that increase, investors realized a huge amount of gains in 1986. Then, in 1987, realizations fell by almost as much, returning to a level comparable to that before the tax increase.... The sensitivity of realizations to gains tax rates raises the possibility that a cut in the rate could so increase realizations... in the short run.... [A] stock of accumulated gains may be realized shortly after the rate is cut, but once that accumulation is "unlocked," the stock of accrued gains is smaller and realizations cannot continue at as fast a rate as they did initially.... The potentially large difference between the long- and short-term sensitivity of realizations to tax rates can mislead observers into assuming a greater permanent responsiveness than actually exists...

Justin Fox:

"Serious" economists and capital gains taxes - The Curious Capitalist - Justin Fox - Economy - Markets - Business - TIME: on this particular topic I tend to rely on professors at fancy universities who have served in the current Bush administration, because I figure it's hard to dismiss their verdict as political. The current consensus of this crowd is pretty well reflected in a 2004 paper by Greg Mankiw, the former chairman of Bush's Council of Economic Advisers, and Matthew Weinzierl, which concluded that "for standard parameter values, half of a capital tax cut is self-financing." That means half of the tax cut is not self-financing--so the overall result of the cut is a revenue loss. And those "standard parameter values" include spending cuts to make up for the revenue loss from the tax cuts. If you simply do as the Bush administration has done, and make no commensurate spending cuts, you get less than half of the tax cut back...

A quibble: without offsetting spending cuts, you get less than zero of the tax cut back. The dynamic revenue loss is greater than the static revenue loss.

Adam Smith on Poverty

Les notions de pauvreté absolue et relative sont fondamentales et leur différence explique une bonne part du débat sur le caractère problématique (ou non) de l'accroissement des inégalités. Il est intéressant de voir ce que disait le grand Adam sur le sujet, et en cela comme en beaucoup d'autres choses la réponse n'est pas celle qu'on aurait attendu....

Adam Smith on Poverty

via Economist's View de Mark Thoma le 22/06/08

Gavin Kennedy finds Don Arthur at Club Troppo asking "What if Adam Smith was Right about Poverty?" This relates to the idea often heard in debates about poverty that since the material well-being of the poor has increased over time, there's no need to worry about inequality:

Adam Smith on Poverty, by Gavin Kennedy: A post by Don Arthur in the Australian Blog, Club Troppo, (here) which has been quoted on Lost Legacy in the past when I referred to articles by Nicholas Gruen, opens an interesting and important discussion on poverty in societies and Adam Smith's expressed view on the issue. I only quote some parts of it, and I have deleted several excellent references and discussions of recent work by academics on related matters. Check the link and read them for yourself:

What if Adam Smith was right about poverty? Don Arthur, June 22: Well-being isn't just about our relationship with things, it's also about our relationships with each other. Poverty hurts, not just because it can leave you feeling hungry, cold and sick, but because it can also leave you feeling ignored, excluded and ashamed. In The Theory of Moral Sentiments Adam Smith argued that all of us want others to pay attention to us and treat us with respect. And "it is chiefly from this regard to the sentiments of mankind, that we pursue riches and avoid poverty."

Recent research confirms Smith's intuitions — social pain is every bit as aversive as physical pain. ...

So if Smith is right then what should we do about involuntary poverty? Is it enough to provide state subsidised goods such as housing and healthcare and to dole out money for necessities?

Adam Smith — Poverty as social exclusion
According to Adam Smith, human beings are by nature social creatures. In The Theory of Moral Sentiments, he wrote:

Nature, when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his brethren. She taught him to feel pleasure in their favourable, and pain in their unfavourable regard.

The reason poverty causes pain is not just because it can leave people feeling hungry, cold and sick, but because it is associated with unfavourable regard. As he explains:

'The poor man … is ashamed of his poverty. He feels that it either places him out of the sight of mankind, or, that if they take any notice of him, they have, however, scarce any fellow–feeling with the misery and distress which he suffers. He is mortified upon both accounts; for though to be overlooked, and to be disapproved of, are things entirely different, yet as obscurity covers us from the daylight of honour and approbation, to feel that we are taken no notice of, necessarily damps the most agreeable hope, and disappoints the most ardent desire, of human nature. The poor man goes out and comes in unheeded, and when in the midst of a crowd is in the same obscurity as if shut up in his own hovel.'

For Smith, a person's possessions function as signals of underlying personal characteristics — characteristics that others regard either favourably or unfavourably. In the Wealth of Nations he wrote:

'A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, nobody can well fall into without extreme bad conduct.'

As Mark Thoma notes, Adam Smith thought poverty was about much more than physical deprivation. The labourer's linen shirt has value because it can be used to influence other people's opinions. The labourer is using the shirt as a raw material in a production process — a process that affects other people's mental states, changes their behaviour and, ultimately, improves the psychological well being of the wearer.

The 'good' that is being consumed here is not the shirt — it is the observer's opinion. While it's true that the observer's opinion only affects the labourer's well being via behavioural signaling, this is true of many consumer goods. ...

The social utility of wealth
According to Smith, the rich get far more attention and respect than the poor — even when they've done nothing to merit it. "In equal degrees of merit", he wrote, "there is scarce any man who does not respect more the rich and the great, than the poor and the humble." Material consumption acts a signal of underlying characteristics — characteristics that are able to provoke deference, approval and affection. ... There is growing body of evidence for this claim. ...

What if Adam Smith was right?
For Adam Smith poverty meant having visibly less than others. But it's not obvious that Smith's problem of poverty could be solved simply by handing out food, housing and health care to those at the bottom of the income distribution. Smith argued that people have social as well as physical needs. In our society, working-age adults meet many of these needs through paid employment. Work is not just a source of income, it can also be a source of status, belonging and approval from others.

This view of well-being helps explain why income redistribution on its own will never be enough to guarantee that the needs of the least advantaged are met. When income support payments are linked to tests of employability (as with disability payments) or job search effort (as with unemployment payments), eligibility for the payments is itself a signal (whether we like it or not).

If we're committed to constantly improving well-being of the least advantaged, what policies should we support?"

Comment
I may come back to this later as I am about to leave for my wife's birthday party and it would not be nice to delay proceedings at our daughter's house. Meanwhile read the whole posting by Don Arthur; it is an excellent use of your time.

As I've said before, poverty is not just about absolute income, i.e. about meeting physical needs. Poverty exists when a person cannot fully participate in society:

Giving people the things they need to be a full part of the society they live in is the decent and right thing to do. As our society elevates itself and the requirements for full participation increase, when things like computers are as necessary as a stove, our standards of decency - what we are willing to accept as a minimum standard of living - must also rise. Just meeting physical needs - food and clothing - is not enough to be a full part of the society we live in today. We can and should do better than that.

"The Income-Inequality Denialists"

"The Income-Inequality Denialists"

via Economist's View de Mark Thoma le 30/06/08

Speaking of "the George W. Bush administration ... quest to win the class war by making America's income distribution more unequal," Justin Fox finds out what happens if you say the inequality in the U.S. has been increasing. I've been down this road:

The strange fantasy world of the income-inequality denialists, by Justin Fox: One of the more interesting developments in the U.S. economy over the past few decades has been the dramatic rise in incomes at the very top of the scale. There's all sorts of anecdotal evidence for this... But the most exhaustive empirical evidence for this income explosion at the top has come from the work of economists Thomas Piketty and Emanuel Saez...

Certain elements among the right-wing economic chattering classes ... have honed an interesting response to this rise in income inequality: They deny that it exists. My economic policy cover story of a while back, which cited Piketty and Saez, seems to be drawing these denialists out of the woodwork. Gary North is one, and now David Gitlitz joins in at National Review Online:

On income inequality, Fox accepts as fact the findings of economists Thomas Piketty and Emanuel Saez that "75% of all income gains from 2002 to '06 went to the top 1% — households making more than $382,600 a year." But as Piketty and Saez have acknowledged, these results are significantly skewed by the fact that their data only includes income reported on individual tax returns.

Following cuts in individual tax rates in 1986 (under Ronald Reagan) and 2003 (under George W. Bush), many of the businesses that had been reporting income under the corporate tax switched to the lower individual rate. In 1986, business income accounted for only 11 percent of the income reported by the top 1 percent of earners. By 2005 that share jumped to more than 29 percent. Clearly, much of the reported gain of the top 1 percent is accounted for in this bookkeeping shift.

Uh, no it's not. That purported problem, raised by Alan Reynolds, was swatted down pretty convincingly by Piketty and Saez:

Most of the scenarios described by Alan Reynolds, such as a shift from corporate income to individual income or from qualified stock-options to non-qualified stock options, would imply that high incomes used to receive capital gains instead of ordinary income. For example, a closely held C-corporation which does not distribute its profits increases in value and those accumulated profits would appear as realized capital gains on the owner individual tax return when the business is sold. Yet, our top 1% income share series including realized capital gains has also doubled from 10.0% in 1980 to 19.8% in 2004.

A fair description of the current state of knowledge on the income distribution is that members of the economics establishment (from right-wingers to left) more or less unanimously accept the Piketty and Saez data as a more or less accurate representation of reality. There are big debates about what it all means, and why it's happening, but the only major objections that I know of to the Piketty-Saez data itself have been those raised on the op-ed page of the Wall Street Journal by Reynolds, a senior fellow at the libertarian Cato Institute who doesn't appear to have an advanced degree in economics or in anything else.

It's a case where the scientific consensus says one thing, and this one guy says the opposite. I don't have an advanced degree in anything either, and I like to think that on occasion the scientific consensus will turn out to be wrong and the lone outsider right. But I'm pretty sure this isn't one of those cases.

Why not? First, there's all that anecdotal evidence of vast new fortunes being created.

Second, Piketty and Saez have pretty convincing answers to all of Reynolds' objections to their data.

Third, Piketty and Saez come across as data jockeys with no particular axe to grind, while Reynolds is an overt ideologue.

Finally, when Reynolds strays into an area that I actually know something about--the use of stock options in compensation--he is so clearly blowing smoke that it becomes difficult for me to trust anything else he says....

So here's where all that leaves me. I'm going to keep "accept[ing] as fact the findings of economists Thomas Piketty and Emanuel Saez." And anyone who says I shouldn't do so, without raising some major objections beyond the feeble array already trotted out by Reynolds, goes down in my book as something of a joker.

Mobility and Inequality

Mobility and Inequality

via Economist's View de Mark Thoma le 14/07/08

In his last post, Lane Kenworthy asked: Can Mobility Offset an Increase in Inequality?. His answer, which included a series of graphs to illustrate his point, was that:

...[as] Milton Friedman ... suggested...Income mobility helps to reduce income inequality. ...

Single-point-in-time income inequality has risen sharply in the United States since the 1970s. Has mobility increased too? Stay tuned.

I did stay tuned, and here's the next installment:

Rising Inequality Has Not Been Offset by Mobility, by Lane Kenworthy: Income inequality in the United States is typically measured with data from a survey that asks around 50,000 households what their income was in the previous year. According to these data, inequality has increased sharply since the 1970s (see the second chart here).

But this survey includes different households each year. It therefore misses any mobility — movement of households up and down in the distribution over time — that occurs. If mobility has increased, the conclusion that there is more inequality might be misleading. ...

The type of mobility at issue here is relative intragenerational income mobility. Has it increased in recent decades?

To find out, we need panel data — data for the same households (or individuals) over a number of years. There are three main sources of such data. Each suggests the same conclusion: relative intragenerational income mobility in the United States has not increased.

A standard way to assess mobility is to divide households into quintiles (five equally-sized groups) based on their income at the starting time point. Then we look at the share of each of these groups that moves up (or down) in the distribution between time 1 and time 2. More movement indicates more mobility.

One source of data is the Panel Study of Income Dynamics (PSID), a panel survey of nearly 8,000 households begun in 1969. The following chart shows the share in each of the bottom four quintiles that moved up over three successive decades beginning in 1969. (There's no significance to the choice to show movement up; the graph could just as well show the share moving down. The point is whether the shares increase over time.) The shares were calculated by Katharine Bradbury and Jane Katz. (See also this earlier analysis by Peter Gottschalk and Sheldon Danziger.) There is no indication of an increase in mobility from the 1970s to the 1980s to the 1990s.

A second data source is income tax returns, which are analyzed in a U.S. Treasury Department report (see table A-5). ... Here too the period examined is roughly a decade. In this study there are two periods: 1987-96 and 1996-2005. The next chart shows the shares moving up in each of the two periods. Again the data do not indicate an increase in mobility.

A third data source is Social Security earnings records. These records are available since 1937. Wojciech Kopczuk, Emmanuel Saez, and Jae Song have used them to study changes in earnings mobility. They conclude that "short-term and long-term mobility among all workers has been quite stable since 1951."

The fact that all three data sources suggest the same conclusion doesn't necessarily mean it's correct, but it offers good reason to favor that conclusion. Rising income and earnings inequality in the United States does not appear to have been offset by increased mobility.

"Is the U.S. a High-Inequality Country if Mobility Is Taken into Account?"

Sur les questions relatives de l'inégalité et de la mobilité, et en particulier sur le mythe bien américain de la compensation de l'une par l'autre

Fascinant

"Is the U.S. a High-Inequality Country if Mobility Is Taken into Account?"

via Economist's View de Mark Thoma le 20/07/08

The U.S. exhibits considerable inequality relative to other countries - it ranks last in the sample of countries in the first graph in the link below. But the data shown in the graph are for a point in time, a single year - the usual measure of inequality - and thus do not capture income mobility. If there are differences in mobility across countries, then perhaps looking at a longer timeframe that allows for mobility will change the picture. Lane Kenworthy, Markus Gangl, and Joakim Palme look at this issue and find that while longer timeframes are associated with lower Gini coefficients, looking at longer timeframes does not improve the position of the U.S. relative to other countries:

Is the U.S. a High-Inequality Country if Mobility Is Taken into Account?, Consider the Evidence

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Argh, Gasp, Rheuh, Arghhh

Il existe une frange de l'élite américaine qui a abandonné toute conscience sociale et toute notion de responsabilité collective. Tantôt elle subventionne de pseudo-études sur la négation du réchauffement climatique, tantôt elle corrompt les administrations (surtout républicaines) pour affaiblir la protection des citoyens, tantôt elle tend la sébille quand la situation devient difficile (bailout anyone ?). Mais tout cela se fait dans une parfaite bone conscience, que l'anecdote racontée ci-dessous illustre admirablement.
Comment peut on oser ériger cette salope raciste et amorale de Ayn Rand, avec ses surhommes, ses victimes consentantes, son apologie de la l'égoïsme et de la domination en modèle du capitalisme ? il faut avoir atteint des tréfonds de dégénérescence morale... Noter au passage l'absence totale de recul du journaliste sur l'oeuvre elle même.

April 11 (Bloomberg) -- Ayn Rand's novels of headstrong entrepreneurs' battles against convention enjoy a devoted following in business circles. While academia has failed to embrace Rand, calling her philosophy simplistic, schools have agreed to teach her works in exchange for a donation.
The charitable arm of BB&T Corp., a banking company, pledged $1 million to the University of North Carolina Charlotte in 2005 and obtained an agreement that Rand's novel ``Atlas Shrugged'' would become required reading for students. Marshall University in Huntington, West Virginia, and Johnson C. Smith University in Charlotte, North Carolina, say they also took grants and agreed to teach Rand.
The author, who died in 1982, used her self-righteous heroes to promote objectivism, a philosophy that embraces reason and individualism, while rejecting religion. While Rand, an advocate of free markets, would support a university's getting paid to teach her works, the idea riles academic ethicists.
``A corporation crosses a line and a university is complicit in crossing the line if it accepts money'' and accedes to a request to assign specific books, said Jonathan Knight, director of the program on academic freedom, tenure and governance for the American Association of University Professors, in Washington. ``It's unique in my experience.'' Knight has worked in the field for 31 years.
As universities seek ways to bolster finances, such as with top level sports teams, donations to dictate curricula are still rare. Yaron Brook, the executive director of the Ayn Rand Institute, a nonprofit organization in Irvine, California, that promotes objectivism, said some professors are re-evaluating Rand.
``We're definitely seeing more of an interest in the academic world,'' Brook said. He said he senses a softening of opposition from academics and sees more conferences and articles about Rand.
`Absolutist Ethics'
``Ayn Rand has a kind of absolutist ethics,'' Brook said. ``She believes in right or wrong, good and evil, but based on secular principles, not religious principles, and I think there's an appeal for that now.''
Alan Greenspan, later the U.S. Federal Reserve chairman, was among Rand's early disciples, in the 1950s. Mark Cuban, the billionaire owner of the National Basketball Association's Dallas Mavericks, calls Rand's ``The Fountainhead'' one of his favorite business books. John Allison, chief executive officer of BB&T, deems ``Atlas Shrugged'' the best defense of capitalism ever written, and requires managers to read it.
Rand believed American universities had been taken over in the 20th century by thinkers who rejected her notion that many of life's questions have one right answer, said Judith Wilt, an English professor at Boston College.
`Places for Discourse'
``Universities as places for discourse and argument and a kind of searching tend to be more interested in what Rand would call vagueness,'' said Wilt, 66, who is teaching a seminar on Rand and contemporaries such as John Steinbeck and Arthur Miller. ``Universities tend to be interested not in closing the argument, but in keeping it open.''
Rand was born in Russia in 1905 and emigrated to the U.S. in 1926. Businessmen who were guided by their own consciences or self-interest were the heroes of her novels. ``The Fountainhead,'' published in 1943, tells the story of architect Howard Roark, who blows up a housing project he designed rather than compromise his vision.
`I Love It'
``I love it because it's so motivating,'' Cuban, 49, said in an e-mail. ``It's about an individual standing up for and believing in himself, ignoring what others think.''
In ``Atlas Shrugged,'' Rand describes the collapse of the U.S. economy when the most productive industrialists, led by John Galt, withdraw from society.
``Atlas Shrugged'' has sold 6 million copies since its first printing in 1957. After sales sagged to an average of 77,000 a year in the 1980s, they climbed steadily and topped 185,000 last year, the Rand institute said, citing publishers' data.
Allison's BB&T, based in Winston-Salem, North Carolina, in March pledged $2 million to establish the first U.S. chair in the study of objectivism, at the University of Texas at Austin.
That school and 27 others have accepted an aggregate $30 million from the bank's foundation in the last decade.
``These gifts are really about the study of capitalism from a moral perspective and all we want is to make Rand part of the dialogue,'' said Bob Denham, a spokesman for BB&T, the parent of Branch Banking & Trust Co.
The BB&T Charitable Foundation made a five-year, $1 million commitment to the University of North Carolina Charlotte in January 2005 after a dinner meeting between Allison and Claude Lilly, then dean of UNC Charlotte's business school.
`Required Reading'
The grant agreement described ``Atlas Shrugged'' as ``required reading'' in a course about the fundamentals of capitalism.
BB&T donated $500,000 last year to Johnson C. Smith University to help endow a professorship on capitalism and free markets, with lessons including ``Atlas Shrugged.'' It's the fourth endowed chair at the historically black college in Charlotte.
`` I don't believe I have to advocate that people accept Ayn Rand's philosophy,'' said Patricia Roberson-Saunders, who holds the chair. Roberson-Saunders, who will present Rand with other texts, said students will benefit from reading about a world view held by ``people with whom they will have to work and for whom they will have to work.''
Marshall announced in January that it received $1 million to establish the BB&T Center for the Advancement of American Capitalism. As part of the curriculum, an upper-level course will focus on ``Atlas Shrugged'' and Adam Smith's ``The Wealth of Nations.''
Marshall spokesman Dave Wellman wasn't immediately available for comment.
`Crossing the Line'
After BB&T mandated that some schools teach ``Atlas Shrugged,'' grant seekers became aware of Allison's interest and now tailor their applications by stating up front their interest in Rand, Denham said.
Scholars scoff at the Rand bounty, saying her ideas are too shallow to build courses around her.
``Rand could not write her way out of a paper bag,'' said Harold Bloom, a professor of the humanities and English at Yale University in New Haven, Connecticut. Bloom, 77, is the author of ``The Western Canon: The Books and School of the Ages'' (Harcourt, 1994), an examination of the most important works in Western literature. Rand isn't on the list.
To contact the reporter on this story: Matthew Keenan in Boston at mkeenan6@bloomberg.net. Last Updated: April 11, 2008 00:01 EDT

Le rôle des institutions dans le développement des inégalités

Via Mark Thoma, un papier de Frank Levy sur le rôle des institutions (par opposition aux mécanismes normaux du marché et du progrès technologique) dans le développement marqué des inegalités de revenu aux USA sur les deux dernières décennies.
Intéressant dans la mesure où il apporte de l'eau au moulin de ceux qui, comme Krugman ou une partie de la gaucha américaine, pensent qu'il existe une dimension institutionnelle (et donc réversible) au phénomène. Certains des arguments avancés dans le papier sont assez convaincants (voir le graphe comparé des répartitions de revenu entre les USA et le Japon, c'est édifiant).

Meyerson sur la middle class américaine

Un témoignage de Meyerson sur la situation de la classe moyenne américaine

Meyerson sur la middle class américaine

Un témoignage de Meyerson sur la situation de la classe moyenne américaine

TAP Talks to Paul Krugman | The American Prospect

Il faut vraiment que je commande le dernier livre de paul K

TAP Talks to Paul Krugman The American Prospect

Et une référence des archives de Prospect, qui illustre comment il a, sur le sujet de l'inégalité, été un incroyable précurseur (tant dans la démonstration du problème que dans l'exposition de ses conséquences sur le débat public américain).

lien archive Prospect

what's good for gm is no longer good for America

Via Naked Capitalism, un pointeur sur un article de greider dans the nation qui présente un argument intéressant sur l'impact du libre échange (tel qu'il se construit aujourd'hui - la notion de "libre" est en effet hautement discutable).
Si on résume l'argument, les entreprise échangent profits (aux US) contre GDP (dans les pays émergents), ce qui se traduit mécaniquement (aux US) par un accroissement des revenus du capital (profits) au détriment des revenus du travail. Le premier étant beaucoup moins bien réparti que le second, il n'est pas difficile de faire le lien avec l'accroissement insensé des inégalités que connaît la société américaine depuis une vingtaine d'années.
L'article a aussi l'intérêt de passer au lance flammes l'argument imbécile, malhonnête, et pourtant largement répandu (entre autres par des publications comme the economist) selon lequel il suffirait aux sociétés occidentales de mieux former leur force de travail pour compenser les effets de la globalisation.

The Nation
The Establishment Rethinks Globalization
by WILLIAM GREIDER
[from the April 30, 2007 issue]
The church of global free trade, which rules American politics with infallible pretensions, may have finally met its Martin Luther. An unlikely dissenter has come forward with a revised understanding of globalization that argues for thorough reformation. This man knows the global trading system from the inside because he is a respected veteran of multinational business. His ideas contain an explosive message: that what established authorities teach Americans about global trade is simply wrong--disastrously wrong for the United States.
Martin Luther was a rebellious priest challenging the dictates of a corrupt church hierarchy. Ralph Gomory, on the other hand, is a gentle-spoken technologist, trained as a mathematician and largely apolitical. He does not set out to overthrow the establishment but to correct its deeper fallacies. For many years Gomory was a senior vice president at IBM. He helped manage IBM's expanding global presence as jobs and high-tech production were being dispersed around the world.
The experience still haunts him. He decided, in retirement, that he would dig deeper into the contradictions. Now president of the Alfred P. Sloan Foundation, he knew something was missing in the "pure trade theory" taught by economists. If free trade is a win-win proposition, Gomory asked himself, then why did America keep losing?
The explanations he has developed sound like pure heresy to devout free traders. But oddly enough, Gomory's analysis is a good fit with what many ordinary workers and uncredentialed critics (myself included) have been arguing for some years. An important difference is that Gomory's critique is thoroughly grounded in the orthodox terms and logic of conventional economics. That makes it much harder to dismiss. Given his career at IBM, nobody is going to call Ralph Gomory a "protectionist."
He did not nail his "theses" to the door of the Harvard economics department. Instead, he wrote a slender book--Global Trade and Conflicting National Interests--in collaboration with respected economist William Baumol, former president of the American Economic Association. Published seven years ago, the book languished in academic obscurity and until recently was ignored by Washington policy circles.
I asked Gomory if his former colleagues from the corporate world quarrel with his provocative message. "Most of them have never heard it," he said. "It's a pretty new message." He has discussed his reform ideas with some CEOs, "who said, Well, maybe we could do that. Others couldn't have disagreed more strongly."
Now Gomory is attempting to re-educate the politicians in Congress. He has gained greater visibility lately because he has been joined by a group of similarly concerned corporate executives called the Horizon Project. Its leader, Leo Hindery, former CEO of the largest US cable company and a player in Democratic politics, shares Gomory's foreboding about the destructive impact of globalization on American prosperity. Huge losses are ahead--10 million jobs or more--and Hindery fears time is running out on reform.
"We want to be a counter to the Hamilton Project," Hindery explains. "They have a sense of stasis that is more benign than I have. I don't think this is all going to work out." The Hamilton policy group was launched last year by former Treasury Secretary Robert Rubin to make sure the laissez-faire trade doctrine known as Rubinomics continues to dominate the Democratic Party. "We're never going to have the status of Bob Rubin," Hindery concedes. "But we're not chopped liver either. We have respectable business careers. You can't tell Ralph Gomory that he is 'smoke and mirrors,' because he wrote the book."
Gomory's critique has great political potential because it provides what the opponents of corporate-led globalization have generally lacked: a comprehensive intellectual platform for arguing that the US approach to globalization must be transformed to defend the national interest. Still, it will take politicians of courage to embrace his ideas and act on them. Gomory's political solutions are as heretical as his economic analysis.
At IBM back in the 1980s, Gomory watched in awe as Japan and other Asian nations captured high-tech industrial sectors in which US companies held commanding advantage. IBM invented the disk drive, then dropped out of the disk-drive business, unable to compete profitably. Gomory marveled at Singapore, a tiny city-state, as it lured American manufacturers with low-wage labor, capital subsidies and tax breaks. The US companies turned Singapore into a global center for semiconductor production.
"It was an unforgettable transformation," Gomory remembers. "And it was pretty frightening.
"The offer that many Asian countries will give to American companies is essentially this: 'Come over here and enhance our GDP. If you are here our people will be building disk drives, for example, instead of something less productive. In return, we'll help you with the investment, with taxes, maybe even with wages. We'll make sure you make a profit.' This works for both sides: the American company gets profits, the host country gets GDP. However, there is another effect beyond the benefits for those two parties--high-value-added jobs leave the U.S."
China and India, he observes, are now doing this on a large scale. Microsoft and Google opened rival research centers in Beijing. Intel announced a new, $2.5 billion semiconductor plant that will make it one of China's largest foreign investors. China's industrial transformation is no longer about making shirts and shoes, as some free-trade cheerleaders still seem to believe. It is about capturing the most advanced processes and products.
The multinationals' overseas deployment of capital and technology, Gomory explains, is the core of how some very poor developing nations are able to ratchet up their technological prowess, take over advanced industrial sectors and rapidly expand their share in global trade--all with the help of US companies and finance, as they roam the world in search of better returns.
The Gomory-Baumol book describes this as "a divergence of interests" between multinational firms and their home country. "This overseas investment decision may then prove to be very good for that multinational firm," they write. "But there remains the question: Is the decision good for its own country?" In many cases, yes. If the firm is locating low-skilled industrial production in a very poor country, Americans get cheaper goods, trade expands for both sides and the result is "mutual gain." But the trading partners enter a "zone of conflict" if the poor nation develops greater capabilities and assumes the production of more advanced goods. Then, the authors explain, "the newly developing partner becomes harmful to the more industrialized country." The firm's self-interested success "can constitute an actual loss of national income for the company's home country."
American multinationals, as principal actors in this transfer of wealth-generating productive capacity, are distinctively free to make the decisions for themselves without interference from government. They want profit and future consumer markets. Their home country wants to maintain a highly productive high-wage economy. Without recognizing it, the two are pulling in opposite directions--the "divergence of interests" most US politicians ignore, evidently believing church doctrine over visible reality.
The Gomory-Baumol book explains the dynamics with charts and equations for economists to study. For the rest of us, it is easier to follow Gomory's personal explanation of changing fortunes among trading nations. "What made America much wealthier than the Asian nations in the first place?" Gomory asks. "We invested alongside our workers. Our workers dug ditches with backhoes. The workers in underdeveloped countries dug ditches with shovels. We had great big plants with a few people in them, which is the same thing. We knew how, through technology and investment, to make our workers highly productive. It wasn't that they went to better schools, then or now, and I don't know how much schooling it takes to run a backhoe.
"The situation today is that the companies have discovered that using modern technology they can do all that overseas and pay less for labor and then import product and services back into the United States. So what we're doing now is competing shovel to shovel. The people in many countries are being equipped with as good a shovel or backhoe as our people have. Very often we are helping them make the transition. We're making it person-to-person competition, which it never was before and which we cannot win. Because their people will be paid a third, a quarter of what our people are paid. And it's unreasonable to think you can educate our people so well that they can produce four times as much in the United States."
As this shift of productive assets progresses, the downward pressure on US wages will thus continue and intensify. Free-trade believers insist US workers can defend themselves by getting better educated, but Gomory suggests these believers simply don't understand the economics. "Better education can only help," he explains. "The question is where do you put your technology and knowledge and investment? These other countries understand that. They have understood the following divergence: What countries want and what companies want are different."
The implication is this: If nothing changes in how globalization currently works, Americans will be increasingly exposed to downward pressure on incomes and living standards. "Yes," says Gomory. "There are many ways to look at it, all of which reach the same conclusion."
I ask Gomory what he would say to those who believe this is a just outcome: Americans become less rich, others in the world become less poor. That might be "a reasonable personal choice," he agrees. "But that isn't what the people in this country are being told. No one has said to us: 'You're probably a little too rich and these other folks are a little too poor. Why don't we even it out?' Instead, what we usually hear is: 'It's going to be good for everyone. In the long run we're going to get richer with globalization.'"
Gomory and Baumol are elaborating a fundamental point sure to make many economists (and political leaders) sputter and choke. Contrary to dogma, the losses from trade are not confined to the "localized pain" felt by displaced workers who lose jobs and wages. In time, the accumulating loss of a country's productive base can injure the broader national interest--that is, everyone's economic well-being.
"Our objective," Baumol told a policy conference last summer, "is to show how outsourcing can indeed reduce the share of benefits of trade, not only for those who lose their jobs and suffer a direct reduction in wages but can wind up making the average American worse off than he or she would have been."
The conventional win-win assurances, they explain, are facile generalizations that ignore the complexity of the trading system--the myriad differences in country-to-country relationships and the vast realm of government actions and policy interventions designed to shape the outcomes. "Many of our 'dismal science' colleagues speak unguardedly as though they believe free trade cannot fail, no matter what," Baumol said.
Some nations, in other words, do indeed become "losers." Gomory fears the United States is now one of them--starting to go downhill. When he and Baumol wrote their book, they figured US trade relations with China and India produced "mutual gain" for both ends. The United States got cheaper goods, China and India got jobs and a start at industrialization. But the rapid improvements in those two nations during the past decade, Gomory thinks, are putting the United States in the bind where their gain becomes our loss.
Essentially, the terms of trade have changed as more and more value-added production has shifted from the United States to its poorer trading partners. America, he explains, becomes increasingly dependent, buying from abroad more and more of what its citizens consume and producing relatively less at home. US incomes stagnate as the high-wage jobs disappear and US exports become a smaller share of the world total.
The persistent offshoring of domestic production is leading to a perverse consequence: The United States finds itself paying more for imports. The production that originally moved offshore to get low-wage labor and cheaper goods is now claiming a larger and larger share of national income, as the growing trade deficits literally subtract from US domestic growth. "All the stuff you were already importing from them becomes more expensive," Gomory explains. "That's why you can start going downhill--because you pay more for what you were previously getting." Put another way, one hour of US work no longer buys as many hours of Chinese work as it once did. China can suppress its domestic wages to keep selling more of its stuff, but that does not alter the fundamental imbalance in productive strength.
The US predicament is vividly reflected in the nation's swollen trade deficits, now running at nearly 7 percent of GDP every year. The country consumes more than it produces. It borrows heavily from trading partners, led by China, to pay for its "excess" consumption. This allows America to dodge--temporarily--a reckoning with its weakened condition, that is, falling living standards. But that will eventually occur, when Americans are compelled to reduce their consumption and pay off the overdue bills. Postponement will deepen the ultimate injury because, meanwhile, the trading partners will gain greater industrial capabilities, while US productive strength weakens further.
Americans can choose to blame China or disloyal multinationals, but the problem is grounded in US politics. The solution can be found only in Washington. China and other developing nations are pursuing national self-interest and doing what the system allows. In a way, so are the US multinationals. "I want to stress it's a system problem," Gomory says. "The directors are doing the job they're sworn to do. It's a system that says the companies have to have a sole focus on maximizing profit."
Gomory's proposed solution would change two big things (and many lesser ones). First, the US government must intervene unilaterally to cap the nation's swollen trade deficit and force it to shrink until balanced trade is achieved with our trading partners. The mechanics for doing this are allowed under WTO rules, though the emergency action has never been invoked by a wealthy nation, much less the global system's putative leader. Capping US trade deficits would have wrenching consequences at home and abroad but could force other nations to consider reforms in how the trading system now functions. That could include international rights for workers, which Gomory favors.
Second, government must impose national policy direction on the behavior of US multinationals, directly influencing their investment decisions. Gomory thinks this can be done most effectively through the tax code. A reformed corporate income tax would penalize those firms that keep moving high-wage jobs and value-added production offshore while rewarding those that are investing in redeveloping the home country's economy.
US companies are not only free of national supervision but actively encouraged to offshore production by government policy and tax breaks. Other advanced economies have sophisticated national industrial policies, plus political and cultural pressures, that guide and discipline their multinationals, forcing them to adhere more closely to the national interest.
Neither of Gomory's fundamental policy reforms--balancing trade or imposing discipline on US multinationals--can work without the other. Both have to be done more or less at once. If the government taxed US multinational behavior without also capping imports, the firms would just head out the door. "That won't work," Gomory explains, "because you will say to the companies, 'This is how we're going to measure you.' And the corporations will say, 'Oh, no, you're not. I'm going overseas. I'm going to make my product over there and I'll send it back into the United States.' But if you insist on balanced trade, then the amount that's shipped in has to equal the amount that's shipped out by companies. If no companies do that, then nothing can be shipped in either. If you balance trade, you are going to develop internal companies that work the way you want." Public investment in new technologies and industries, I would add, may not achieve much either, if there is no guarantee that the companies will locate their new production in the United States.
Essentially, Gomory proposes to alter the profit incentives of US multinationals. If the government adds rules of behavior and enforces them through the tax code, companies will be compelled to seek profit in a different way--by adhering to the national interest and terms set by the US government. Other nations do this in various ways. Only the United States imagines the national interest doesn't require it.
In recent months Gomory and Leo Hindery of the Horizon Project have been calling on Congress with these big ideas and getting respectful audiences. The two met with some thirty Democratic senators and Congressional staffers from both parties. Senator Byron Dorgan, with co-sponsors like Sherrod Brown, Russell Feingold and even Hillary Clinton, has introduced several bills to confront the trade deficits.
Gomory's concept for multinational taxation is a tougher sell amid Washington lobbyists because it goes right to the bottom line of major US corporations. On the other hand, this proposal has stronger intuitive appeal for citizens, who reasonably ask why multinationals are allowed to undercut the national interest when they enjoy all the benefits of being "American" companies.
Hindery's group is advocating Congressional action to arrange a "national summit" on trade, where all these questions can be thrashed out. The political system has never really had an honest, open debate on globalization in the past thirty years. The dogmatic church of free trade--"free trade good, no trade bad"--wouldn't allow it. As more politicians grasp the meaning of Gomory's analysis, they should start demanding equal time for the heretics.
Gomory's vision of reformation actually goes beyond the trading system and America's economic deterioration. He wants to re-create an understanding of the corporation's obligations to society, the social perspective that flourished for a time in the last century but is now nearly extinct. The old idea was that the corporation is a trust, not only for shareholders but for the benefit of the country, the employees and the people who use the product. "That attitude was the attitude I grew up on in IBM," Gomory explains. "That's the way we thought--good for the country, good for the people, good for the shareholders--and I hope we will get back to it.... We should measure corporations by their impact on all their constituencies.
"So in my utopian dream, we decide what we want from the corporations and that's how they make a profit--by doing those things. Failing that, I would settle for the general realization of this divergence and let people argue it out."
Some older CEOs and board members at least listen to him sympathetically. "They have grandchildren," he says. "They wonder too what's going to happen to our grandchildren. You can't get a vote around the corporate board table about, Is this good for the grandchildren? But you can talk to them and they'll worry about it and say, Well, maybe we need to do something."