It really gets annoying how all discussions of inequality in the media take the White Savior route, where we need the government to act to reduce inequality created by the natural workings of the market. David Leonhardt gave us another dose of this one today when he speculated about the state of the post-pandemic world.
While much of his speculation is interesting, he hypothesizes that we will see greater corporate consolidation in the post-pandemic world. He then says that this can lead to greater inequality, however, he holds out the hope that under a Biden administration, the government might take action to counter this trend.
First, it is important to note that increased corporate profits have been a relatively small factor in the rise of inequality over the last four decades. The vast majority of the upward redistribution was within the wage structure, with CEOs, Wall Street traders, doctors, and other highly paid professionals gaining at the expense of ordinary workers. Only about 10 percent of the gap between productivity and wage growth could be attributed to the shift to profits. Furthermore, the labor share had been rising in the tight labor market of the last few years, so this shift could well have been reversed completely if the pandemic had not hit.
This point is important not only because Leonhardt’s concerns about the impact of concentration on inequality may be misplaced, but because he ignores the real sources of inequality. In particular, government-granted patent and copyright monopolies have been a huge factor in the rise of inequality over the last four decades. Reducing their impact on the upward redistribution of income requires less government action, not more.
This point should be especially obvious to people paying attention to efforts to develop a vaccine to protect against the coronavirus. The government is paying companies billions of dollars to research and test a vaccine. Incredibly, it is also giving these companies patent monopolies, which will then let them charge whatever they want for a successful vaccine.
These monopolies are likely to be worth tens or even hundreds of billions of dollars to their holders. If the government instead went the route where it said that if it paid for the research, then it would be fully open and all vaccines developed can then be sold as cheap generics, it would both save the public an enormous sum in paying for the vaccine and mean that the shareholders and top researchers at these drug companies would not get so rich.
This issue of course comes up more generally. We will spend more than $500 billion this year on prescription drugs that would cost us less than $100 billion in a free market. The gap of $400 billion is roughly 20 percent of all before-tax corporate profits. There are similar stories in medical equipment, computer software, and many other major sectors of the economy.
If the government had alternative mechanisms to finance research and development it would redistribute less income upward, which would mean that we would have less inequality. The government also promotes inequality through its regulation of the financial sector, rules of corporate governance, and protection for highly paid professionals. (It’s all in Rigged [it’s free].)
Anyhow, it is apparently satisfying for policy types to say that we need good government to address the inequality that the bad market is giving to us, but this view has little to do with reality. First and foremost we need the government to stop structuring the market in ways that give us ever more inequality.
It really gets annoying how all discussions of inequality in the media take the White Savior route, where we need the government to act to reduce inequality created by the natural workings of the market. David Leonhardt gave us another dose of this one today when he speculated about the state of the post-pandemic world.
While much of his speculation is interesting, he hypothesizes that we will see greater corporate consolidation in the post-pandemic world. He then says that this can lead to greater inequality, however, he holds out the hope that under a Biden administration, the government might take action to counter this trend.
First, it is important to note that increased corporate profits have been a relatively small factor in the rise of inequality over the last four decades. The vast majority of the upward redistribution was within the wage structure, with CEOs, Wall Street traders, doctors, and other highly paid professionals gaining at the expense of ordinary workers. Only about 10 percent of the gap between productivity and wage growth could be attributed to the shift to profits. Furthermore, the labor share had been rising in the tight labor market of the last few years, so this shift could well have been reversed completely if the pandemic had not hit.
This point is important not only because Leonhardt’s concerns about the impact of concentration on inequality may be misplaced, but because he ignores the real sources of inequality. In particular, government-granted patent and copyright monopolies have been a huge factor in the rise of inequality over the last four decades. Reducing their impact on the upward redistribution of income requires less government action, not more.
This point should be especially obvious to people paying attention to efforts to develop a vaccine to protect against the coronavirus. The government is paying companies billions of dollars to research and test a vaccine. Incredibly, it is also giving these companies patent monopolies, which will then let them charge whatever they want for a successful vaccine.
These monopolies are likely to be worth tens or even hundreds of billions of dollars to their holders. If the government instead went the route where it said that if it paid for the research, then it would be fully open and all vaccines developed can then be sold as cheap generics, it would both save the public an enormous sum in paying for the vaccine and mean that the shareholders and top researchers at these drug companies would not get so rich.
This issue of course comes up more generally. We will spend more than $500 billion this year on prescription drugs that would cost us less than $100 billion in a free market. The gap of $400 billion is roughly 20 percent of all before-tax corporate profits. There are similar stories in medical equipment, computer software, and many other major sectors of the economy.
If the government had alternative mechanisms to finance research and development it would redistribute less income upward, which would mean that we would have less inequality. The government also promotes inequality through its regulation of the financial sector, rules of corporate governance, and protection for highly paid professionals. (It’s all in Rigged [it’s free].)
Anyhow, it is apparently satisfying for policy types to say that we need good government to address the inequality that the bad market is giving to us, but this view has little to do with reality. First and foremost we need the government to stop structuring the market in ways that give us ever more inequality.
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• InequalityLa DesigualdadIntellectual PropertyPropiedad Intelectual
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• COVID-19CoronavirusEconomic Crisis and RecoveryCrisis económica y recuperaciónInequalityLa DesigualdadIntellectual PropertyPropiedad Intelectual
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• COVID-19CoronavirusEconomic Crisis and RecoveryCrisis económica y recuperaciónGlobalization and TradeGlobalización y comercio
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Apparently Steven Rattner, a regular columnist at the New York Times, is unable to get government data on corporate profits. That is what readers must conclude from his column on the strength of the stock market in spite of a plunging economy. While Rattner rightly points to the fact that interest rates on bonds are extremely low, which makes stocks seem like an attractive alternative, he never once mentions the likely shift from wages to profits that we can expect in a weak labor market.
The bulk of the widely touted shift from wages to profits occurred in the weak labor market following the Great Recession. (There was also a shift in the housing bubble years, but this was largely fake profits as banks and other financial institutions booked large profits on loans that subsequently went bad. This would be like recorded profits on fictitious sales.) Workers were regaining their share in the tight labor market of the last five years.
With the coronavirus recession likely to lead to a weak labor market for years to come, especially if the Republicans and deficit hawks can dictate policy, the profit share is likely to rise back to post-Great Recession peaks. This would mean that profits will soar, even if the economy is very weak.
Apparently Steven Rattner, a regular columnist at the New York Times, is unable to get government data on corporate profits. That is what readers must conclude from his column on the strength of the stock market in spite of a plunging economy. While Rattner rightly points to the fact that interest rates on bonds are extremely low, which makes stocks seem like an attractive alternative, he never once mentions the likely shift from wages to profits that we can expect in a weak labor market.
The bulk of the widely touted shift from wages to profits occurred in the weak labor market following the Great Recession. (There was also a shift in the housing bubble years, but this was largely fake profits as banks and other financial institutions booked large profits on loans that subsequently went bad. This would be like recorded profits on fictitious sales.) Workers were regaining their share in the tight labor market of the last five years.
With the coronavirus recession likely to lead to a weak labor market for years to come, especially if the Republicans and deficit hawks can dictate policy, the profit share is likely to rise back to post-Great Recession peaks. This would mean that profits will soar, even if the economy is very weak.
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One of the recurring items in the news that infuriates progressives and fans of economic logic everywhere is discussions of the stock market that treat it as a measure of economic well-being. Donald Trump carries this to an extreme, with seemingly no understanding that there are other important economic measures, but he is hardly alone. In fact, many economic commentators seem hard-pressed to explain the continued strength of the stock market, when most projections show the unemployment rate remaining extraordinarily high for the foreseeable future.
The reason why this is infuriating is that there is no direct link between the growth in the stock market and the health of the economy. This is not a leftist criticism of the evils of capitalism, it is the Finance 101 explanation of stock prices.
The stock market is supposed to reflect the present value of future after-tax corporate profits. (“Present value” means that we apply a discount rate so that profits anticipated five or ten years out are considered to be of less value than profits expected next month.) This means that events in the world that are likely to lead to higher future profits should raise stock prices, regardless of whether or not they are good for the economy as a whole.
This could mean that the stock market will rise when the economy is strong, since other things equal, a stronger economy is likely to mean higher corporate profits. But, the stock market could rise simply because corporate profits are expected to increase at the expense of everyone else’s income.
Just to take an example from recent policy changes, a big cut in the corporate income tax should lead to higher stock prices, since it should mean higher after-tax profits. There is little reason to believe that a cut in corporate income taxes would have a substantial effect in boosting growth (it didn’t), but since after-tax profits will be higher as a result of the tax cut, the stock market should also be higher.
The stock market does generally track the economy for the simple reason that stronger growth will usually mean higher profits, but this is hardly a tight connection. The price of corn will generally track the overall economy too since stronger growth will be mean more demand for corn, but no one in their right mind would treat the price of corn as an indicator of economic well-being.
So why do people insist on treating the stock market as a measure of economic well-being when it clearly is not? That probably is attributable to the people who benefit from a rising stock market. That would be the people who own lots of stock, in other words, rich people. Rich people are also the ones who own and control major news outlets. For this reason, they are not bothered when people writing news stories or columns say that the stock market is a measure of economic well-being, as opposed to being a measure of how much money rich people have.
To be clear, I doubt anyone in an ownership position at a newspaper or broadcast or Internet outlet ever told a reporter or columnist to write a piece saying that the stock market is a measure of economic well-being. Rather, this is one of those wrong things that a reporter or columnist can say over and over again and never be called on the carpet for it. By contrast, if a reporter tried to tell their audience that the price of corn is a measure of economic well-being, they would probably have some serious explaining to do to their editor and other higher-ups. If they continued to assert that the price of corn was a measure of economic well-being, they would probably be looking for a new job.
The point here is that power has a large influence on what arguments appear in news outlets. Because people with money benefit from higher stock prices, we are likely to continue to see the claim that stock prices are a measure of economic well-being long into the future, even though it is not true.
Power and Government-Granted Patent Monopolies
The story of the stock market as a measure of economic well-being is important to keep in mind when we consider the media’s decision to almost completely ignore the issue of patent and copyright monopolies as government policies that redistribute income upward. Just as the myth of the stock market metric of well-being is perpetuated because of who it benefits, the analysis of patents and copyrights as policies leading to upward redistribution is not ever mentioned because of who would potentially be harmed.
In the case of patent and copyright monopolies, the beneficiaries go beyond the relatively small group of people who own large amounts of stock in pharmaceutical companies, medical equipment manufacturers, or software developers. It includes the bulk of the highly educated workforce, including the people who edit, write, and report for major news outlets. Even if many of these people are not especially highly paid, they almost certainly have friends and relatives who benefit from patent and copyright monopolies.
There is a very widespread belief that trends in technology and globalization are major factors in the upward redistribution of income over the last four decades. The basic story is that developments in computers, biotechnology, and other areas have hugely increased the value of education (especially in the STEM fields) and reduce the value of unskilled (their term) manual labor. Many people who consider themselves quite progressive hold this view. They just feel that they should give back some of their good fortune by paying higher taxes to benefit the less fortunate.
However, if it is acknowledged that it is government policy, specifically patent and copyright monopolies, that is behind this upward redistribution, and not technology or globalization, then it means inequality was the result of deliberate policy, not the natural workings of the market.[1] This is a much less flattering view, both for those who want to keep the benefits from this upward redistribution and even for those progressives who would willingly pay higher taxes.
For this reason, the argument that upward redistribution was the result of deliberate policy, is not one that is welcome in most media outlets, including progressive ones. The idea that patents and copyrights are simply facts of nature persists, even though it is obviously absurd on its face.
It is unfortunate that power relations preclude serious debate on an issue that is so central to reducing inequality. But it is important to recognize the obstacles to having this debate if we are ever to overcome them.
[1] I have made this argument in a number of different places, for example here, here, and here. But to illustrate the issue as simply as possible, consider a world where there are no patent or copyright monopolies. How many people would be paid to research new drugs and develop new medical equipment in a context where any manufacturers could immediately copy anything developed and sell it at a price that would recoup manufacturing costs and a normal profit? How many people would be paid to design software for computers, smartphones, and other products if anyone could immediately copy the software without sending the developer a dime? While these are valuable services, how many people are employed doing them, and how much they get paid are quite clearly the result of policy decisions, not the technology itself.
One of the recurring items in the news that infuriates progressives and fans of economic logic everywhere is discussions of the stock market that treat it as a measure of economic well-being. Donald Trump carries this to an extreme, with seemingly no understanding that there are other important economic measures, but he is hardly alone. In fact, many economic commentators seem hard-pressed to explain the continued strength of the stock market, when most projections show the unemployment rate remaining extraordinarily high for the foreseeable future.
The reason why this is infuriating is that there is no direct link between the growth in the stock market and the health of the economy. This is not a leftist criticism of the evils of capitalism, it is the Finance 101 explanation of stock prices.
The stock market is supposed to reflect the present value of future after-tax corporate profits. (“Present value” means that we apply a discount rate so that profits anticipated five or ten years out are considered to be of less value than profits expected next month.) This means that events in the world that are likely to lead to higher future profits should raise stock prices, regardless of whether or not they are good for the economy as a whole.
This could mean that the stock market will rise when the economy is strong, since other things equal, a stronger economy is likely to mean higher corporate profits. But, the stock market could rise simply because corporate profits are expected to increase at the expense of everyone else’s income.
Just to take an example from recent policy changes, a big cut in the corporate income tax should lead to higher stock prices, since it should mean higher after-tax profits. There is little reason to believe that a cut in corporate income taxes would have a substantial effect in boosting growth (it didn’t), but since after-tax profits will be higher as a result of the tax cut, the stock market should also be higher.
The stock market does generally track the economy for the simple reason that stronger growth will usually mean higher profits, but this is hardly a tight connection. The price of corn will generally track the overall economy too since stronger growth will be mean more demand for corn, but no one in their right mind would treat the price of corn as an indicator of economic well-being.
So why do people insist on treating the stock market as a measure of economic well-being when it clearly is not? That probably is attributable to the people who benefit from a rising stock market. That would be the people who own lots of stock, in other words, rich people. Rich people are also the ones who own and control major news outlets. For this reason, they are not bothered when people writing news stories or columns say that the stock market is a measure of economic well-being, as opposed to being a measure of how much money rich people have.
To be clear, I doubt anyone in an ownership position at a newspaper or broadcast or Internet outlet ever told a reporter or columnist to write a piece saying that the stock market is a measure of economic well-being. Rather, this is one of those wrong things that a reporter or columnist can say over and over again and never be called on the carpet for it. By contrast, if a reporter tried to tell their audience that the price of corn is a measure of economic well-being, they would probably have some serious explaining to do to their editor and other higher-ups. If they continued to assert that the price of corn was a measure of economic well-being, they would probably be looking for a new job.
The point here is that power has a large influence on what arguments appear in news outlets. Because people with money benefit from higher stock prices, we are likely to continue to see the claim that stock prices are a measure of economic well-being long into the future, even though it is not true.
Power and Government-Granted Patent Monopolies
The story of the stock market as a measure of economic well-being is important to keep in mind when we consider the media’s decision to almost completely ignore the issue of patent and copyright monopolies as government policies that redistribute income upward. Just as the myth of the stock market metric of well-being is perpetuated because of who it benefits, the analysis of patents and copyrights as policies leading to upward redistribution is not ever mentioned because of who would potentially be harmed.
In the case of patent and copyright monopolies, the beneficiaries go beyond the relatively small group of people who own large amounts of stock in pharmaceutical companies, medical equipment manufacturers, or software developers. It includes the bulk of the highly educated workforce, including the people who edit, write, and report for major news outlets. Even if many of these people are not especially highly paid, they almost certainly have friends and relatives who benefit from patent and copyright monopolies.
There is a very widespread belief that trends in technology and globalization are major factors in the upward redistribution of income over the last four decades. The basic story is that developments in computers, biotechnology, and other areas have hugely increased the value of education (especially in the STEM fields) and reduce the value of unskilled (their term) manual labor. Many people who consider themselves quite progressive hold this view. They just feel that they should give back some of their good fortune by paying higher taxes to benefit the less fortunate.
However, if it is acknowledged that it is government policy, specifically patent and copyright monopolies, that is behind this upward redistribution, and not technology or globalization, then it means inequality was the result of deliberate policy, not the natural workings of the market.[1] This is a much less flattering view, both for those who want to keep the benefits from this upward redistribution and even for those progressives who would willingly pay higher taxes.
For this reason, the argument that upward redistribution was the result of deliberate policy, is not one that is welcome in most media outlets, including progressive ones. The idea that patents and copyrights are simply facts of nature persists, even though it is obviously absurd on its face.
It is unfortunate that power relations preclude serious debate on an issue that is so central to reducing inequality. But it is important to recognize the obstacles to having this debate if we are ever to overcome them.
[1] I have made this argument in a number of different places, for example here, here, and here. But to illustrate the issue as simply as possible, consider a world where there are no patent or copyright monopolies. How many people would be paid to research new drugs and develop new medical equipment in a context where any manufacturers could immediately copy anything developed and sell it at a price that would recoup manufacturing costs and a normal profit? How many people would be paid to design software for computers, smartphones, and other products if anyone could immediately copy the software without sending the developer a dime? While these are valuable services, how many people are employed doing them, and how much they get paid are quite clearly the result of policy decisions, not the technology itself.
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• COVID-19CoronavirusEconomic Crisis and RecoveryCrisis económica y recuperaciónGlobalization and TradeGlobalización y comercioInequalityLa DesigualdadIntellectual PropertyPropiedad Intelectual
The Washington Post ran a piece on how patterns of globalization may be changed due to the pandemic. It is more than a bit confused in not distinguishing short-term effects from long-term effects and its inability to distinguish between problems caused by fiscal policy and policies caused by the fallout from the pandemic.
The headline for the piece on the Post’s homepage is “Covid-19 is erasing decades of economic gains achieved through globalization.” The subhead is “The way we travel, work, consume, invest, interact, migrate, cooperate on global problems and pursue prosperity has likely been changed for years to come.”
Literally nothing in the piece supports the claim in the headline and insofar as items in the piece support the subhead it is at least as likely to be positive as negative. The gist of the piece is that we have seen a massive reduction in trade and travel as a result of the pandemic. While some of this may prove to be permanent, the piece gives us no reason to believe that the bulk of trade will not return to normal once the pandemic has been brought under control, either with effective treatments or with a vaccine.
In terms of travel, any enduring effect is likely to be largely positive. An enormous amount of resources is now wasted on business travel and conventions that can be just as effectively performed on-line. This realization will free up a large number of resources for more productive uses, such as health care, child care, and stopping global warming. Of course, less travel by itself will be a big help in reducing worldwide greenhouse gas emissions.
In addition, the increased use of telecommuting will allow tens of millions of people to avoid unnecessary trips to their offices, leading to both an enormous saving of both time and energy. This will also free up resources for more productive purposes. This change should also help reduce inequality since so much wealth and income that had been concentrated in major cities like New York and San Francisco will now be dispersed more widely across the country. There will undoubtedly be similar patterns in other countries.
At one point the piece warns of restrictions on foreign investment being considered in Italy and then offers the warning:
“The new restrictions have raised an alarm among Italian industrialists, who say their country’s long-stagnant economy will need more foreign capital, not less, to emerge from this crisis.”
While Italy does need more investment, the problem is that European leaders have chosen to limit the ability of eurozone countries like Italy to finance investment by running budget deficits. The problem here is that Europe’s leaders, most importantly the government of Germany, have insisted on policies to slow investment and growth, not an inherent lack of investment capital in Italy.
Incredibly, while the piece complains repeatedly about protectionism, it does not mention the most important forms of protectionism of all, patent and copyright monopolies. This is especially bizarre in the context of the pandemic since one of the big questions is whether any treatments or vaccines that are developed will be widely available or whether companies will use government-granted patent monopolies to charge high prices.
If China paves the way in developing a vaccine (it has as many vaccines in Phase III testing as the rest of the world combined) and carries through with its commitment to making any vaccine freely available to the whole world, then this will both be enormously important in and of itself, but also an incredibly valuable precedent. If a vaccine against the coronavirus can be distributed in a free market as a cheap generic, it is reasonable to ask why this should not be the case with all new drugs.
If this were to lead to new mechanisms for financing pharmaceutical research and a worldwide free market in prescription drugs, it would imply a huge increase in globalization and an enormous gain for developing countries. The gains would be even larger if we moved beyond patent monopoly financing of research in areas like medical equipment, pesticides and fertilizers, and software.
This sort of globalization would be bad news for many U.S. corporations and many highly paid employees of these corporations, which is perhaps why the Washington Post never talks about it. But if we want to seriously discuss prospects for the future in a post-pandemic world, moving beyond patent and copyright monopolies has to be on the agenda.
The Washington Post ran a piece on how patterns of globalization may be changed due to the pandemic. It is more than a bit confused in not distinguishing short-term effects from long-term effects and its inability to distinguish between problems caused by fiscal policy and policies caused by the fallout from the pandemic.
The headline for the piece on the Post’s homepage is “Covid-19 is erasing decades of economic gains achieved through globalization.” The subhead is “The way we travel, work, consume, invest, interact, migrate, cooperate on global problems and pursue prosperity has likely been changed for years to come.”
Literally nothing in the piece supports the claim in the headline and insofar as items in the piece support the subhead it is at least as likely to be positive as negative. The gist of the piece is that we have seen a massive reduction in trade and travel as a result of the pandemic. While some of this may prove to be permanent, the piece gives us no reason to believe that the bulk of trade will not return to normal once the pandemic has been brought under control, either with effective treatments or with a vaccine.
In terms of travel, any enduring effect is likely to be largely positive. An enormous amount of resources is now wasted on business travel and conventions that can be just as effectively performed on-line. This realization will free up a large number of resources for more productive uses, such as health care, child care, and stopping global warming. Of course, less travel by itself will be a big help in reducing worldwide greenhouse gas emissions.
In addition, the increased use of telecommuting will allow tens of millions of people to avoid unnecessary trips to their offices, leading to both an enormous saving of both time and energy. This will also free up resources for more productive purposes. This change should also help reduce inequality since so much wealth and income that had been concentrated in major cities like New York and San Francisco will now be dispersed more widely across the country. There will undoubtedly be similar patterns in other countries.
At one point the piece warns of restrictions on foreign investment being considered in Italy and then offers the warning:
“The new restrictions have raised an alarm among Italian industrialists, who say their country’s long-stagnant economy will need more foreign capital, not less, to emerge from this crisis.”
While Italy does need more investment, the problem is that European leaders have chosen to limit the ability of eurozone countries like Italy to finance investment by running budget deficits. The problem here is that Europe’s leaders, most importantly the government of Germany, have insisted on policies to slow investment and growth, not an inherent lack of investment capital in Italy.
Incredibly, while the piece complains repeatedly about protectionism, it does not mention the most important forms of protectionism of all, patent and copyright monopolies. This is especially bizarre in the context of the pandemic since one of the big questions is whether any treatments or vaccines that are developed will be widely available or whether companies will use government-granted patent monopolies to charge high prices.
If China paves the way in developing a vaccine (it has as many vaccines in Phase III testing as the rest of the world combined) and carries through with its commitment to making any vaccine freely available to the whole world, then this will both be enormously important in and of itself, but also an incredibly valuable precedent. If a vaccine against the coronavirus can be distributed in a free market as a cheap generic, it is reasonable to ask why this should not be the case with all new drugs.
If this were to lead to new mechanisms for financing pharmaceutical research and a worldwide free market in prescription drugs, it would imply a huge increase in globalization and an enormous gain for developing countries. The gains would be even larger if we moved beyond patent monopoly financing of research in areas like medical equipment, pesticides and fertilizers, and software.
This sort of globalization would be bad news for many U.S. corporations and many highly paid employees of these corporations, which is perhaps why the Washington Post never talks about it. But if we want to seriously discuss prospects for the future in a post-pandemic world, moving beyond patent and copyright monopolies has to be on the agenda.
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I hate to be nitpicky when the NYT writes a very strong editorial arguing that we need more money going to ordinary workers and less to the rich, but it is important to get the story right. Unfortunately, the editorial misses much of it.
First and foremost, there has not been a major shift from wages to profits during the period of wage stagnation. Most of the shift from wages to profits took place in the weak labor market following the Great Recession. It was being reversed in the last five years until the recession hit. If we use the data from 2019, the median wage would have been 4.2 percent higher than it actually was if the wage share was back at its 1979 level. This is a bit more than 10 percent of the gap between productivity growth and wage growth over the last four decades.
Rather than going to profits, the upward redistribution went to high-end workers like CEOs and other top executives, Wall Street traders and other high flyers in the financial sector, and doctors and other highly paid professionals. If we want to reverse this upward redistribution, these should be the focus of efforts at redistribution.
The piece also implies that stock returns have been extraordinarily high through the last four decades. This is clearly wrong. While returns were very high in the 1980s and 1990s, they actually have been well below long-term averages for the last two decades.
In this vein, the piece also proposes banning share buybacks as a way to reduce returns to shareholders. It is not clear what it hopes this would accomplish. It is hardly better for workers or anyone else if companies pay out money to shareholders through dividends rather than share buybacks. (There are tax issues, that make buybacks preferable for shareholders, but since shares turn over frequently, the tax consequences are limited.) For some reason, share buybacks have become a big cause in some circles, but it is difficult to see why the form of payments to shareholders would be a big deal.
The piece also is very modest in suggesting that the minimum wage should be raised to $15 an hour. While this is a good near-term target, if the minimum wage had kept pace with productivity growth since 1968, it would be over $24 an hour today. The country would look very different if the lowest-paid worker was getting $24 an hour today. This comes to $48,000 a year for a full-time, full-year worker. A couple with two full-time minimum wage earners would have an income of $96,000 a year.
In order to be able to raise the minimum wage back to its productivity-adjusted level from 1968, and not see excessive inflation, we would have to take steps to reduce high-end wages. This would mean things like fixing the corporate governance structures so CEOs could not ripoff the companies for which they work. This would mean they might get $2 million to $3 million a year, instead of $20 million. We would have to eliminate the waste in the financial sector, thereby ending the exorbitant pay in this sector. We would also have to weaken the importance of patent and copyright monopolies, making it less likely that Bill Gates types could get $100 billion. And, we would have to subject doctors and other highly paid professionals to competition, bringing their pay in line with their counterparts in other wealthy countries.
Anyhow, this is a big agenda, but if we want to bring about real change we have to understand the nature of the problem, and for the most part, it is not high corporate profits. Yeah, this is the story in Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it’s free).
I hate to be nitpicky when the NYT writes a very strong editorial arguing that we need more money going to ordinary workers and less to the rich, but it is important to get the story right. Unfortunately, the editorial misses much of it.
First and foremost, there has not been a major shift from wages to profits during the period of wage stagnation. Most of the shift from wages to profits took place in the weak labor market following the Great Recession. It was being reversed in the last five years until the recession hit. If we use the data from 2019, the median wage would have been 4.2 percent higher than it actually was if the wage share was back at its 1979 level. This is a bit more than 10 percent of the gap between productivity growth and wage growth over the last four decades.
Rather than going to profits, the upward redistribution went to high-end workers like CEOs and other top executives, Wall Street traders and other high flyers in the financial sector, and doctors and other highly paid professionals. If we want to reverse this upward redistribution, these should be the focus of efforts at redistribution.
The piece also implies that stock returns have been extraordinarily high through the last four decades. This is clearly wrong. While returns were very high in the 1980s and 1990s, they actually have been well below long-term averages for the last two decades.
In this vein, the piece also proposes banning share buybacks as a way to reduce returns to shareholders. It is not clear what it hopes this would accomplish. It is hardly better for workers or anyone else if companies pay out money to shareholders through dividends rather than share buybacks. (There are tax issues, that make buybacks preferable for shareholders, but since shares turn over frequently, the tax consequences are limited.) For some reason, share buybacks have become a big cause in some circles, but it is difficult to see why the form of payments to shareholders would be a big deal.
The piece also is very modest in suggesting that the minimum wage should be raised to $15 an hour. While this is a good near-term target, if the minimum wage had kept pace with productivity growth since 1968, it would be over $24 an hour today. The country would look very different if the lowest-paid worker was getting $24 an hour today. This comes to $48,000 a year for a full-time, full-year worker. A couple with two full-time minimum wage earners would have an income of $96,000 a year.
In order to be able to raise the minimum wage back to its productivity-adjusted level from 1968, and not see excessive inflation, we would have to take steps to reduce high-end wages. This would mean things like fixing the corporate governance structures so CEOs could not ripoff the companies for which they work. This would mean they might get $2 million to $3 million a year, instead of $20 million. We would have to eliminate the waste in the financial sector, thereby ending the exorbitant pay in this sector. We would also have to weaken the importance of patent and copyright monopolies, making it less likely that Bill Gates types could get $100 billion. And, we would have to subject doctors and other highly paid professionals to competition, bringing their pay in line with their counterparts in other wealthy countries.
Anyhow, this is a big agenda, but if we want to bring about real change we have to understand the nature of the problem, and for the most part, it is not high corporate profits. Yeah, this is the story in Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (it’s free).
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I have long been a big fan of a vacant property tax. As the old saying goes, you tax what you want less of, and why would we want vacant properties. This is especially likely to be relevant in many high-priced cities where the demand for commercial real estate is likely to go through the floor due to an increase in telecommuting.
As cities mull many types of tax increases to deal with pandemic caused budget shortfalls, a vacant property tax should stand out as a productive alternative. The economy would be best served by having landlords quickly recognize that their property is not worth as much as it used to be, and therefore lower rents to keep it occupied. This will be good for keeping old businesses and supporting new ones since rent is the major expense for most businesses, especially small businesses.
At the end of the day, recognizing reality is likely to be good for landlords, since they don’t make money on vacant property. Of course, landlords are often not very good at economics. Both Donald Trump and Jared Kushner are major property owners.
I have long been a big fan of a vacant property tax. As the old saying goes, you tax what you want less of, and why would we want vacant properties. This is especially likely to be relevant in many high-priced cities where the demand for commercial real estate is likely to go through the floor due to an increase in telecommuting.
As cities mull many types of tax increases to deal with pandemic caused budget shortfalls, a vacant property tax should stand out as a productive alternative. The economy would be best served by having landlords quickly recognize that their property is not worth as much as it used to be, and therefore lower rents to keep it occupied. This will be good for keeping old businesses and supporting new ones since rent is the major expense for most businesses, especially small businesses.
At the end of the day, recognizing reality is likely to be good for landlords, since they don’t make money on vacant property. Of course, landlords are often not very good at economics. Both Donald Trump and Jared Kushner are major property owners.
Read More Leer más Join the discussion Participa en la discusión
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