Opinion columns are always given more leeway than news articles, but it would be reasonable to expect that an opinion column in a major newspaper have some connection to reality. That does not appear to be the case with this one that tells us “I live in Sweden. I’m not panicking.”
The piece is a defense of Sweden’s decision to not have a shutdown period in which most businesses are closed and people are restricted from traveling for non-essential purposes. This has resulted in far higher infection rates in Sweden and most importantly far higher death rates.
The only acknowledgment of this failure is when it tells readers:
“Sweden’s approach differs even from that of our Scandinavian neighbors, where society swiftly closed and many fewer deaths have been reported. Critics argue that our government and the Public Health Agency acted too late and that the strategy has failed, citing the number of dead in relation to the population of just over 10 million.”
It then continues:
“Officials counter that though many hospitals are under unprecedented stress, the health care system, which is tax-funded and heavily subsidized, still has capacity to care for the sick.
“The vast majority of those who have died in Sweden were over the age of 70. Many of them were people living within the elder-care system, even though visits to nursing homes have been banned. Friends whose loved ones have succumbed to the virus are understandably inconsolable.”
First, the elderly have been disproportionately victims of the virus everywhere, so it is not clear that this story is different in Sweden than elsewhere. But the more important point is that we are not talking about small differences in mortality rates, the differences are huge. As of today, Sweden has a death rate of 350 per million. Denmark’s rate is less than 30 percent as high at 93 per million. Finland’s rate is a bit more than one-seventh of Sweden’s at 52 per million and Norway’s rate is less than 15 percent of Sweden’s at 42 per million.
In other words, we are not talking about marginal differences, Sweden is seeing far more deaths relative to the size of its population than its neighbors because of the route it has taken in dealing with the virus. It would be reasonable to expect a piece defending this route to confront this point clearly rather than hiding the issue from readers who mostly will not know the actual numbers.
Opinion columns are always given more leeway than news articles, but it would be reasonable to expect that an opinion column in a major newspaper have some connection to reality. That does not appear to be the case with this one that tells us “I live in Sweden. I’m not panicking.”
The piece is a defense of Sweden’s decision to not have a shutdown period in which most businesses are closed and people are restricted from traveling for non-essential purposes. This has resulted in far higher infection rates in Sweden and most importantly far higher death rates.
The only acknowledgment of this failure is when it tells readers:
“Sweden’s approach differs even from that of our Scandinavian neighbors, where society swiftly closed and many fewer deaths have been reported. Critics argue that our government and the Public Health Agency acted too late and that the strategy has failed, citing the number of dead in relation to the population of just over 10 million.”
It then continues:
“Officials counter that though many hospitals are under unprecedented stress, the health care system, which is tax-funded and heavily subsidized, still has capacity to care for the sick.
“The vast majority of those who have died in Sweden were over the age of 70. Many of them were people living within the elder-care system, even though visits to nursing homes have been banned. Friends whose loved ones have succumbed to the virus are understandably inconsolable.”
First, the elderly have been disproportionately victims of the virus everywhere, so it is not clear that this story is different in Sweden than elsewhere. But the more important point is that we are not talking about small differences in mortality rates, the differences are huge. As of today, Sweden has a death rate of 350 per million. Denmark’s rate is less than 30 percent as high at 93 per million. Finland’s rate is a bit more than one-seventh of Sweden’s at 52 per million and Norway’s rate is less than 15 percent of Sweden’s at 42 per million.
In other words, we are not talking about marginal differences, Sweden is seeing far more deaths relative to the size of its population than its neighbors because of the route it has taken in dealing with the virus. It would be reasonable to expect a piece defending this route to confront this point clearly rather than hiding the issue from readers who mostly will not know the actual numbers.
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(This piece was originally posted on my Patreon page.)
Neil Irwin had an interesting New York Times piece on how concerns about moral hazard in the bailout may damage the recovery. The gist of the article is that the fear that bad actors will be wrongly rewarded will prevent us from spending enough money to get the economy back on its feet. Irwin’s point is very important, but it does require some further examination.
We might agree for example, that it is silly to oppose an airline bailout because it will help shareholders if the bailout will also save tens of thousands of jobs. The priority should be to preserve jobs and, as much as possible, keep viable corporations intact through this crisis. This is not only to keep employment as high as possible during the crisis but also to preserve the basis for a strong recovery.
But let’s put some meat on the bones here. If we stay with the case of an airline bailout (which actually had some pretty good terms for workers, that were imposed as a result of pressure from industry unions), let’s imagine that the airlines planned to use much of their bailout money to pay out dividends to shareholders. Suppose that they plan to continue to pay CEOs salaries in the neighborhood of $20 million a year. And, they have plans to lay off a large portion of their workforce.
Do we still think it’s a good idea to bail out the airlines? I’m slightly caricaturing the story here, but the basic problem arises in all sectors. We absolutely should place a priority on sustaining the economy through this crisis, but we also have to ask the question of who is benefiting and how much?
That is unfortunate, but we live in a society where, for the last four decades, those on top have taken every opportunity to game the system to enrich themselves at the expense of everyone else. We see this with CEOs who take advantage of the corruption of the corporate governance process to get paychecks that are two to three hundred times the pay of ordinary workers. We have drug companies that constantly game the patent system to extend monopolies that allow them to charge prices that can be tens of thousands of percent above the free market price.
We have a financial industry that makes tens of billions of dollars annually by sneaking fees and penalties into contracts with their customers. And, we have a whole industry, private equity, that has made many of its partners incredibly rich by financial gaming at the expense of the creditors and workers at the companies it buys.
This is the world we lived in when the pandemic hit. In this context is there any reason to trust that the bailout money will serve the overall good of the economy and society?
The fact that Donald Trump has explicitly resisted Congressional efforts at oversight of the bailout hardly helps to promote trust. In fact, given his past behavior and the behavior of top officials in the Trump administration, it is reasonable to assume Trump’s family, friends, and political supporters will disproportionately be the beneficiaries of this bailout.
Furthermore, the punitive steps towards ordinary workers taken by Trump and other Republican officials also undermine any idea that we share a common interest in a bailout that keeps the economy moving. Trump has effectively required tens of thousands of workers in meatpacking plants to return to work in facilities that are unsafe, and without receiving any hazard pay.
Senate Majority Leader Mitch McConnell explicitly said that he wants to force states to declare bankruptcy so that they can default on the pensions that were part of their workers’ pay. McConnell has indicated that he also would like to see cuts to pay of current union workers, but he apparently is mostly anxious to take back the pay for work already done. Trump seems about to pull the same trick with the postal workers, who somehow got left out of the rescue packages approved by Congress. In the same vein, several Republican governors have told employers that they want to be notified of any workers who do not return to work when businesses reopen so that they can cut off their unemployment benefits.
The “we’re all in this together” spirit that might make a sprawling free-flowing bailout seem reasonable does not exist. The rich are not only acting to preserve their wealth in this crisis, but they are also using every opportunity to stuff their pockets as full as possible. In addition to all their standard scams, they are even ripping off the relief effort, charging exorbitant prices for needed drugs, medical equipment, and protective gear.
The idea that the distribution of income was simply the result of the free workings of the market was always a fairy tale, believed only by children and liberal policy wonks. But it is especially absurd as we see the pandemic wreck its havoc and the government choosing which groups will survive more or less in tack or even prosper from the disaster.
In effect, the pandemic has thrown the whole deck of cards up in the air. If we just let the market work its magic in this environment, it will ruin almost any industry or company – in addition to the airline industry, aircraft makers (i.e. Boeing), hotel chains, restaurant chains, hospitals losing payments for elective procedures, health insurance companies, department stores, and retail chains, and many others – would all be going belly up.
We will save most of the companies in hard-hit sectors as a political decision. We will let millions of workers and their families flounder, losing homes and apartments, retirement savings, health care insurance, and other basics as a separate political decision. The idea that this has anything to do with the market is crap. The people with political power are using it to protect and enhance their wealth. And, they are using that power to kick ordinary workers in the face.
Yeah, there are very good reasons for people not to like the current bailout. They are not being irrational.
(This piece was originally posted on my Patreon page.)
Neil Irwin had an interesting New York Times piece on how concerns about moral hazard in the bailout may damage the recovery. The gist of the article is that the fear that bad actors will be wrongly rewarded will prevent us from spending enough money to get the economy back on its feet. Irwin’s point is very important, but it does require some further examination.
We might agree for example, that it is silly to oppose an airline bailout because it will help shareholders if the bailout will also save tens of thousands of jobs. The priority should be to preserve jobs and, as much as possible, keep viable corporations intact through this crisis. This is not only to keep employment as high as possible during the crisis but also to preserve the basis for a strong recovery.
But let’s put some meat on the bones here. If we stay with the case of an airline bailout (which actually had some pretty good terms for workers, that were imposed as a result of pressure from industry unions), let’s imagine that the airlines planned to use much of their bailout money to pay out dividends to shareholders. Suppose that they plan to continue to pay CEOs salaries in the neighborhood of $20 million a year. And, they have plans to lay off a large portion of their workforce.
Do we still think it’s a good idea to bail out the airlines? I’m slightly caricaturing the story here, but the basic problem arises in all sectors. We absolutely should place a priority on sustaining the economy through this crisis, but we also have to ask the question of who is benefiting and how much?
That is unfortunate, but we live in a society where, for the last four decades, those on top have taken every opportunity to game the system to enrich themselves at the expense of everyone else. We see this with CEOs who take advantage of the corruption of the corporate governance process to get paychecks that are two to three hundred times the pay of ordinary workers. We have drug companies that constantly game the patent system to extend monopolies that allow them to charge prices that can be tens of thousands of percent above the free market price.
We have a financial industry that makes tens of billions of dollars annually by sneaking fees and penalties into contracts with their customers. And, we have a whole industry, private equity, that has made many of its partners incredibly rich by financial gaming at the expense of the creditors and workers at the companies it buys.
This is the world we lived in when the pandemic hit. In this context is there any reason to trust that the bailout money will serve the overall good of the economy and society?
The fact that Donald Trump has explicitly resisted Congressional efforts at oversight of the bailout hardly helps to promote trust. In fact, given his past behavior and the behavior of top officials in the Trump administration, it is reasonable to assume Trump’s family, friends, and political supporters will disproportionately be the beneficiaries of this bailout.
Furthermore, the punitive steps towards ordinary workers taken by Trump and other Republican officials also undermine any idea that we share a common interest in a bailout that keeps the economy moving. Trump has effectively required tens of thousands of workers in meatpacking plants to return to work in facilities that are unsafe, and without receiving any hazard pay.
Senate Majority Leader Mitch McConnell explicitly said that he wants to force states to declare bankruptcy so that they can default on the pensions that were part of their workers’ pay. McConnell has indicated that he also would like to see cuts to pay of current union workers, but he apparently is mostly anxious to take back the pay for work already done. Trump seems about to pull the same trick with the postal workers, who somehow got left out of the rescue packages approved by Congress. In the same vein, several Republican governors have told employers that they want to be notified of any workers who do not return to work when businesses reopen so that they can cut off their unemployment benefits.
The “we’re all in this together” spirit that might make a sprawling free-flowing bailout seem reasonable does not exist. The rich are not only acting to preserve their wealth in this crisis, but they are also using every opportunity to stuff their pockets as full as possible. In addition to all their standard scams, they are even ripping off the relief effort, charging exorbitant prices for needed drugs, medical equipment, and protective gear.
The idea that the distribution of income was simply the result of the free workings of the market was always a fairy tale, believed only by children and liberal policy wonks. But it is especially absurd as we see the pandemic wreck its havoc and the government choosing which groups will survive more or less in tack or even prosper from the disaster.
In effect, the pandemic has thrown the whole deck of cards up in the air. If we just let the market work its magic in this environment, it will ruin almost any industry or company – in addition to the airline industry, aircraft makers (i.e. Boeing), hotel chains, restaurant chains, hospitals losing payments for elective procedures, health insurance companies, department stores, and retail chains, and many others – would all be going belly up.
We will save most of the companies in hard-hit sectors as a political decision. We will let millions of workers and their families flounder, losing homes and apartments, retirement savings, health care insurance, and other basics as a separate political decision. The idea that this has anything to do with the market is crap. The people with political power are using it to protect and enhance their wealth. And, they are using that power to kick ordinary workers in the face.
Yeah, there are very good reasons for people not to like the current bailout. They are not being irrational.
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I happened to catch a few minutes of a CNN story featured an interview with a famous chef (sorry, didn’t catch his name) he was discussing the crisis hitting the restaurant industry. After explaining how restaurants will find it almost impossible to survive operating at 25 percent of capacity, he then described the chains of suppliers — the truckers, the wholesalers, the food processors, and the farmers — who will also go under because of the collapse of the restaurant industry.
There is a small problem with this logic. The people who are foregoing meals at restaurants will still be eating, they just will be eating at home instead. This means we will need truckers, wholesalers, food processors, and farmers to produce and transport the food that people eat at home. This could be different companies and it is entirely possible that the number of people employed in the supply chain will be less, but it will be very far from zero.
It is also worth noting that many restaurants will likely be able to survive with 25 percent capacity. Many have substantial take out business. They also will charge much higher prices to cover higher costs. They can get away with charging higher prices since they can afford to lose 75 percent of their customer base and still have their restaurants filled to their new lower level of capacity.
None of this is to say the situation facing restaurants and many other businesses across the country is not horrible, it is, but we should try to think about the prospects seriously and not just pronounce this as the end of the world. It isn’t.
I happened to catch a few minutes of a CNN story featured an interview with a famous chef (sorry, didn’t catch his name) he was discussing the crisis hitting the restaurant industry. After explaining how restaurants will find it almost impossible to survive operating at 25 percent of capacity, he then described the chains of suppliers — the truckers, the wholesalers, the food processors, and the farmers — who will also go under because of the collapse of the restaurant industry.
There is a small problem with this logic. The people who are foregoing meals at restaurants will still be eating, they just will be eating at home instead. This means we will need truckers, wholesalers, food processors, and farmers to produce and transport the food that people eat at home. This could be different companies and it is entirely possible that the number of people employed in the supply chain will be less, but it will be very far from zero.
It is also worth noting that many restaurants will likely be able to survive with 25 percent capacity. Many have substantial take out business. They also will charge much higher prices to cover higher costs. They can get away with charging higher prices since they can afford to lose 75 percent of their customer base and still have their restaurants filled to their new lower level of capacity.
None of this is to say the situation facing restaurants and many other businesses across the country is not horrible, it is, but we should try to think about the prospects seriously and not just pronounce this as the end of the world. It isn’t.
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One of the most striking items in a very striking employment report yesterday is that white unemployment has actually risen slightly more than black unemployment in this crisis. White unemployment has risen from 3.1 percent in February to 14.2 percent in April, a rise of 11.1 percentage points. Black unemployment rose from 5.8 percent to 16.7 percent, an increase of 10.9 percentage points.
While the difference is small and surely statistically insignificant, it does go opposite the usual pattern in a downturn, in which blacks see their unemployment rate rise by twice as much, or more, than the increase in white unemployment. Unfortunately, the difference is probably not for a good reason. Blacks are more likely to be working at jobs where they are classified as essential workers and therefore endangering their health by staying at work through this crisis.
That is not a pretty picture, but one that deserves attention.
One of the most striking items in a very striking employment report yesterday is that white unemployment has actually risen slightly more than black unemployment in this crisis. White unemployment has risen from 3.1 percent in February to 14.2 percent in April, a rise of 11.1 percentage points. Black unemployment rose from 5.8 percent to 16.7 percent, an increase of 10.9 percentage points.
While the difference is small and surely statistically insignificant, it does go opposite the usual pattern in a downturn, in which blacks see their unemployment rate rise by twice as much, or more, than the increase in white unemployment. Unfortunately, the difference is probably not for a good reason. Blacks are more likely to be working at jobs where they are classified as essential workers and therefore endangering their health by staying at work through this crisis.
That is not a pretty picture, but one that deserves attention.
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It is bizarre how reporters continually feel the need to tell us about politicians’ philosophies. Why on earth would they think that politicians are guided by any philosophy? Politicians get elected by getting the support of key constituencies, not by having wonderful philosophies. I would not think that is a seriously contested claim.
This is why everyone should be upset at a Washington Post article on the prospects for another big economic rescue package when it tells us:
“As some states move to reopen, a deep philosophical divide has emerged between the two parties about the proper role for the federal government in producing an economic recovery. Many Republicans say they should focus on creating the best conditions possible for people to go back to work. That would include steps such as limiting liability protections for businesses and reducing regulations, issues that a group of House Republicans discussed with Trump Friday at the White House, participants said.
…
“Democrats, by contrast, believe they need to keep pumping money into the economy. House Speaker Nancy Pelosi (D-Calif.) is working to assemble another enormous relief bill with a price tag likely to top $2 trillion that she could bring up for a vote as soon as this coming week.”
Why on earth would anyone believe that this dispute has anything to do with philosophy? Republicans have the overwhelming support of business people. The proposal to exempt them from liability to workers and customers is an enormous gift to this powerful group of supporters. If a politician gives a big real estate tax break to a big contributor who is heavily invested in real estate would the conclusion be that the politician has a philosophy that it is important to give tax breaks to real estate?
Similarly, the Democratic Party receives considerable support from unions and poor and minority communities that are likely to benefit hugely from a new rescue bill that will provide substantial relief to state and local governments, to the Postal Service, and extend the unemployment benefits put in place last month. Whatever Pelosi’s personal philosophy, it is likely that her need to respond to these constituencies is playing a more important role in her actions right now.
It is also worth mentioning that “creating the best conditions possible for people to go back to work,” likely means actually creating safe workplaces for workers. By reducing the incentive to create safe workplaces, the Republican efforts to remove liability for employers with unsafe workplaces goes in the opposite direction of the goal this article attributes to them.
It is bizarre how reporters continually feel the need to tell us about politicians’ philosophies. Why on earth would they think that politicians are guided by any philosophy? Politicians get elected by getting the support of key constituencies, not by having wonderful philosophies. I would not think that is a seriously contested claim.
This is why everyone should be upset at a Washington Post article on the prospects for another big economic rescue package when it tells us:
“As some states move to reopen, a deep philosophical divide has emerged between the two parties about the proper role for the federal government in producing an economic recovery. Many Republicans say they should focus on creating the best conditions possible for people to go back to work. That would include steps such as limiting liability protections for businesses and reducing regulations, issues that a group of House Republicans discussed with Trump Friday at the White House, participants said.
…
“Democrats, by contrast, believe they need to keep pumping money into the economy. House Speaker Nancy Pelosi (D-Calif.) is working to assemble another enormous relief bill with a price tag likely to top $2 trillion that she could bring up for a vote as soon as this coming week.”
Why on earth would anyone believe that this dispute has anything to do with philosophy? Republicans have the overwhelming support of business people. The proposal to exempt them from liability to workers and customers is an enormous gift to this powerful group of supporters. If a politician gives a big real estate tax break to a big contributor who is heavily invested in real estate would the conclusion be that the politician has a philosophy that it is important to give tax breaks to real estate?
Similarly, the Democratic Party receives considerable support from unions and poor and minority communities that are likely to benefit hugely from a new rescue bill that will provide substantial relief to state and local governments, to the Postal Service, and extend the unemployment benefits put in place last month. Whatever Pelosi’s personal philosophy, it is likely that her need to respond to these constituencies is playing a more important role in her actions right now.
It is also worth mentioning that “creating the best conditions possible for people to go back to work,” likely means actually creating safe workplaces for workers. By reducing the incentive to create safe workplaces, the Republican efforts to remove liability for employers with unsafe workplaces goes in the opposite direction of the goal this article attributes to them.
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The pandemic crisis created a rare economic opportunity. In effect, the whole economy was thrown up for grabs, with the winners and losers determined by who had the political power to get a nice bailout. Needless to say, those who were already rich got the big handouts, those at the bottom got crumbs if anything at all.
Suppose we had let the market work its magic on the airlines, on the hotel chains, the restaurant chains, the aircraft industry (i.e. Boeing), and on the oil industry. With few exceptions, the big actors in these sectors would all have been bankrupt. The companies would have been reorganized, with the ones that were otherwise viable being restructured. Debtors would take large haircuts only collecting a fraction of what they had been owed. Shareholders would be wiped it, losing trillions of dollars of equity. Many top executives would have likely been sent packing, and would no longer be able to count on paychecks in the millions or tens of millions.
Of course, things didn’t turn out this way because almost no one in policy circles actually believes in the market. That’s just something they tell children and liberal policy wonks. The people in power believe in using the government to give themselves as much money as possible. Usually, they can do this by structuring the market so that money flows upward.
This is perhaps most clear in the case of government-granted patent and copyright monopolies. These government-granted monopolies in areas like prescription drugs, medical equipment, software, pesticides, fertilizers, and other items likely transfer more than $1 trillion a year from the pockets of ordinary people to those who own these monopolies. Over the last four decades, these monopolies have been made longer and stronger, with almost no one paying attention, in spite of the huge amount of money at stake.
It is easy to point to market structuring in other areas, most notably finance and corporate governance, which have allowed for the accumulation of great fortunes at the expense of the rest of us. Again, the rule changes that allow for massive upward redistribution were mostly done with little public attention, even though large amounts of money were at stake.
I go through these issues in more detail in Rigged [it’s free], but the point is simple: the rich have structured the market in ways that hugely increase their share of income. They pretend that this was just a natural market outcome. Many liberals accommodate this fiction, complaining that conservatives are “market fundamentalists” who dislike government.
Anyhow, the bailout from the pandemic required surrendering the illusion. The industries that were hardest hit rushed to Congress and the White House and demanded, and got handouts. The sums involved were enormous. The airline industry got $17.5 billion (more than 10 million food stamp person-years) in grants and another $7.5 billion in government-subsidized loans. The cargo airline industry got $4 billion in grants and subsidized loans. The oil industry is getting a large bailout that is still being mapped out. Boeing was designated to get $17 billion in grants and subsidized loans.
This is all in full public view. While many workers will be left unemployed, with meager unemployment benefits (once the initial $600 a week bonus period ends), billionaire shareholders will have the value of their portfolios propped by the government. CEOs and other high-level executives, who pocket millions or even tens of millions in pay annually, will remain secure in their high-paying jobs and will be able to maintain their lavish lifestyles as though nothing had happened.
Congress could have prevented this massive handout, either by requiring bankruptcies and supporting companies through the process, as happened with the auto bailout in the Great Recession, or by restricting executive pay and dividend payouts at companies that received bailouts. As it turned out there were no effective restrictions imposed on these companies.
In fact, Congress decided to throw in a little something extra to help wealthy contributors get through the crisis. It put in a tax break for real estate investors, which will give $170 billion over the next decade to people in the top 1 percent of the income distribution. The beneficiaries of this gift include people like Jared Kushner and the Trump family.
While serious people should do their best to monitor the bailouts and limit corruption, we have to recognize that the rich have largely won this battle. They have managed to ensure that most of them will not only be kept whole through this crisis, but many will also come out ahead. In a period where millions are losing jobs, with many struggling to be able to pay the rent and get enough to eat, the rich have managed to feast off the public purse.
If we can’t pull the rich away from the trough while Donald Trump is still in the White House, we can propose remedies that a Biden administration should pursue. There are two simple and easier ones: a special one-time tax for high-income households and a corporate profit tax tied to stock returns.
For the one-time tax, we can add ten percentage points to the income tax for the top bracket of households for 2020 and 2021. (This would apply to income above roughly $300k for an individual and $500k for a couple.) This tax would be in addition to whatever longer-term changes to the tax code that a Biden administration might want to make. This tax should apply to all income, including capital gains, both realized and unrealized.
The latter would be a new innovation that many tax analysts have advocated for some time. There is no obvious reason to allow someone to defer their taxes on capital gains just because they choose not to sell their stock or real estate. The I.R.S. can gain valuable experience in assessing unrealized capital gains. One obvious mechanism would be to assign a value based on the gains in comparable assets (e.g. a stock index or changes in real estate prices in the area of the property held). The difference between the tax liability for the actual capital gain and the imputed gain can be corrected at the time the asset is sold.
This one-time tax should raise more than $350 billion a year which is a bit more than 1.5 percent of GDP or more than 200 million food stamp person-years. In other words, it is real money, although a bit less than we would save if we had no patent monopolies on prescription drugs.
The other gift to the rich would be a 10 percentage point excess profits tax which would take the form of a tax tied to the returns on their stock. Since companies have gotten very good at hiding their profits from the I.R.S. this tax makes it easy for them. We simply tax away ten percent of returns to shareholders, either in the form of dividends or higher share prices, using the halfway point between the start of the year share price and crisis trough as a reference point.
This means that the companies can hide their profits wherever they want and it doesn’t affect their tax liability unless they also manage to hide them from their shareholders. In that case, the I.R.S. would have a powerful ally in collecting the taxes it is owed. With a market capitalization of U.S. corporations near $40 trillion, if the stock gains under this formula average 8 percent annually over 2020 and 2021, it should net the government another $320 billion for each of these two years.
These two fun fixes should go a long way towards taking back the money that we gave to the rich in the bailout. I usually don’t look to taxes as the primary mechanism for addressing inequality, but rather restructuring the market so that it doesn’t generate so much inequality, but when we are creating massive inequality through direct government transfers to the very rich, it is entirely appropriate to look to taxes to take this money back.
We also don’t have to worry about the long-term impact of creating a massive tax evasion/avoidance industry since this is only a two-year story. We can still count on the rich to lie, cheat, and steal to get out of their taxes for these two years, but it doesn’t make sense for them to make long-term plans to avoid a one-time hit to their income.
I would not count on a Biden administration to be anxious to take back the bailout loot secured by the rich and powerful, but it is possible it can be pressured in this direction. The first step is to put the menu on the table.
The pandemic crisis created a rare economic opportunity. In effect, the whole economy was thrown up for grabs, with the winners and losers determined by who had the political power to get a nice bailout. Needless to say, those who were already rich got the big handouts, those at the bottom got crumbs if anything at all.
Suppose we had let the market work its magic on the airlines, on the hotel chains, the restaurant chains, the aircraft industry (i.e. Boeing), and on the oil industry. With few exceptions, the big actors in these sectors would all have been bankrupt. The companies would have been reorganized, with the ones that were otherwise viable being restructured. Debtors would take large haircuts only collecting a fraction of what they had been owed. Shareholders would be wiped it, losing trillions of dollars of equity. Many top executives would have likely been sent packing, and would no longer be able to count on paychecks in the millions or tens of millions.
Of course, things didn’t turn out this way because almost no one in policy circles actually believes in the market. That’s just something they tell children and liberal policy wonks. The people in power believe in using the government to give themselves as much money as possible. Usually, they can do this by structuring the market so that money flows upward.
This is perhaps most clear in the case of government-granted patent and copyright monopolies. These government-granted monopolies in areas like prescription drugs, medical equipment, software, pesticides, fertilizers, and other items likely transfer more than $1 trillion a year from the pockets of ordinary people to those who own these monopolies. Over the last four decades, these monopolies have been made longer and stronger, with almost no one paying attention, in spite of the huge amount of money at stake.
It is easy to point to market structuring in other areas, most notably finance and corporate governance, which have allowed for the accumulation of great fortunes at the expense of the rest of us. Again, the rule changes that allow for massive upward redistribution were mostly done with little public attention, even though large amounts of money were at stake.
I go through these issues in more detail in Rigged [it’s free], but the point is simple: the rich have structured the market in ways that hugely increase their share of income. They pretend that this was just a natural market outcome. Many liberals accommodate this fiction, complaining that conservatives are “market fundamentalists” who dislike government.
Anyhow, the bailout from the pandemic required surrendering the illusion. The industries that were hardest hit rushed to Congress and the White House and demanded, and got handouts. The sums involved were enormous. The airline industry got $17.5 billion (more than 10 million food stamp person-years) in grants and another $7.5 billion in government-subsidized loans. The cargo airline industry got $4 billion in grants and subsidized loans. The oil industry is getting a large bailout that is still being mapped out. Boeing was designated to get $17 billion in grants and subsidized loans.
This is all in full public view. While many workers will be left unemployed, with meager unemployment benefits (once the initial $600 a week bonus period ends), billionaire shareholders will have the value of their portfolios propped by the government. CEOs and other high-level executives, who pocket millions or even tens of millions in pay annually, will remain secure in their high-paying jobs and will be able to maintain their lavish lifestyles as though nothing had happened.
Congress could have prevented this massive handout, either by requiring bankruptcies and supporting companies through the process, as happened with the auto bailout in the Great Recession, or by restricting executive pay and dividend payouts at companies that received bailouts. As it turned out there were no effective restrictions imposed on these companies.
In fact, Congress decided to throw in a little something extra to help wealthy contributors get through the crisis. It put in a tax break for real estate investors, which will give $170 billion over the next decade to people in the top 1 percent of the income distribution. The beneficiaries of this gift include people like Jared Kushner and the Trump family.
While serious people should do their best to monitor the bailouts and limit corruption, we have to recognize that the rich have largely won this battle. They have managed to ensure that most of them will not only be kept whole through this crisis, but many will also come out ahead. In a period where millions are losing jobs, with many struggling to be able to pay the rent and get enough to eat, the rich have managed to feast off the public purse.
If we can’t pull the rich away from the trough while Donald Trump is still in the White House, we can propose remedies that a Biden administration should pursue. There are two simple and easier ones: a special one-time tax for high-income households and a corporate profit tax tied to stock returns.
For the one-time tax, we can add ten percentage points to the income tax for the top bracket of households for 2020 and 2021. (This would apply to income above roughly $300k for an individual and $500k for a couple.) This tax would be in addition to whatever longer-term changes to the tax code that a Biden administration might want to make. This tax should apply to all income, including capital gains, both realized and unrealized.
The latter would be a new innovation that many tax analysts have advocated for some time. There is no obvious reason to allow someone to defer their taxes on capital gains just because they choose not to sell their stock or real estate. The I.R.S. can gain valuable experience in assessing unrealized capital gains. One obvious mechanism would be to assign a value based on the gains in comparable assets (e.g. a stock index or changes in real estate prices in the area of the property held). The difference between the tax liability for the actual capital gain and the imputed gain can be corrected at the time the asset is sold.
This one-time tax should raise more than $350 billion a year which is a bit more than 1.5 percent of GDP or more than 200 million food stamp person-years. In other words, it is real money, although a bit less than we would save if we had no patent monopolies on prescription drugs.
The other gift to the rich would be a 10 percentage point excess profits tax which would take the form of a tax tied to the returns on their stock. Since companies have gotten very good at hiding their profits from the I.R.S. this tax makes it easy for them. We simply tax away ten percent of returns to shareholders, either in the form of dividends or higher share prices, using the halfway point between the start of the year share price and crisis trough as a reference point.
This means that the companies can hide their profits wherever they want and it doesn’t affect their tax liability unless they also manage to hide them from their shareholders. In that case, the I.R.S. would have a powerful ally in collecting the taxes it is owed. With a market capitalization of U.S. corporations near $40 trillion, if the stock gains under this formula average 8 percent annually over 2020 and 2021, it should net the government another $320 billion for each of these two years.
These two fun fixes should go a long way towards taking back the money that we gave to the rich in the bailout. I usually don’t look to taxes as the primary mechanism for addressing inequality, but rather restructuring the market so that it doesn’t generate so much inequality, but when we are creating massive inequality through direct government transfers to the very rich, it is entirely appropriate to look to taxes to take this money back.
We also don’t have to worry about the long-term impact of creating a massive tax evasion/avoidance industry since this is only a two-year story. We can still count on the rich to lie, cheat, and steal to get out of their taxes for these two years, but it doesn’t make sense for them to make long-term plans to avoid a one-time hit to their income.
I would not count on a Biden administration to be anxious to take back the bailout loot secured by the rich and powerful, but it is possible it can be pressured in this direction. The first step is to put the menu on the table.
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It was a very bizarre choice of words. In a useful and lengthy article on Republican efforts to cut food stamp benefits, we are told:
“The Republican distrust of food stamps has now collided with a monumental crisis. Cars outside food banks have lined up for miles in places as different as San Antonio, Pittsburgh and Miami Beach.”
The piece gives no evidence whatsoever that Republicans “distrust” food stamps. It provides plenty of evidence that they dislike food stamps, just as they dislike anything that helps low and moderate-income people.
It would be good if the paper stopped its mind-reading and just told readers that the Republicans have continually tried to cut food stamps and not imply that there is any question of trust at issue.
It was a very bizarre choice of words. In a useful and lengthy article on Republican efforts to cut food stamp benefits, we are told:
“The Republican distrust of food stamps has now collided with a monumental crisis. Cars outside food banks have lined up for miles in places as different as San Antonio, Pittsburgh and Miami Beach.”
The piece gives no evidence whatsoever that Republicans “distrust” food stamps. It provides plenty of evidence that they dislike food stamps, just as they dislike anything that helps low and moderate-income people.
It would be good if the paper stopped its mind-reading and just told readers that the Republicans have continually tried to cut food stamps and not imply that there is any question of trust at issue.
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I know the media are prohibited from stating this obvious truth, but it seemed a good time to remind folks. The NYT posted an article about how Japan’s prime minister, Shinzo Abe, is promoting a drug produced by a subsidiary of Fujifilm, a large Japanese company, as a treatment for the coronavirus. According to the piece, there is little evidence that the drug, Avigan, is an effective treatment, although the drug is known to cause birth defects. The piece also reports that Fujifilm has been aggressive in touting the drug, in spite of the lack of evidence and its known side effects.
If the drug were available as a cheap generic, so it sold at prices comparable to generic aspirin, it is unlikely that Fujifilm would be anxious to promote it, unless its benefits were clearer. Economists usually believe that people respond to incentives, but for some reason, they never point out that the high prices resulting from government-granted patent monopolies give drug companies incentive to lie about the safety and effectiveness of their drugs.
I know the media are prohibited from stating this obvious truth, but it seemed a good time to remind folks. The NYT posted an article about how Japan’s prime minister, Shinzo Abe, is promoting a drug produced by a subsidiary of Fujifilm, a large Japanese company, as a treatment for the coronavirus. According to the piece, there is little evidence that the drug, Avigan, is an effective treatment, although the drug is known to cause birth defects. The piece also reports that Fujifilm has been aggressive in touting the drug, in spite of the lack of evidence and its known side effects.
If the drug were available as a cheap generic, so it sold at prices comparable to generic aspirin, it is unlikely that Fujifilm would be anxious to promote it, unless its benefits were clearer. Economists usually believe that people respond to incentives, but for some reason, they never point out that the high prices resulting from government-granted patent monopolies give drug companies incentive to lie about the safety and effectiveness of their drugs.
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Daniel W. Drezner used his Washington Post column to contribute to the confusion around the stock market and the economy. He picks up from prior pieces by Paul Krugman and Desmond Lachman as to whether the recent run-up in the economy means investors are expecting a strong recovery.
(Drezner unfortunately refers to the question of a V-shaped recovery. The Congressional Budget Office projects that the economy will shrink at a 39.6 percent annual rate in this quarter, and then grow at 23.5 percent and 10.5 percent annual rates in the third and fourth quarters, respectively. It would be hard not to view the projected 3rd and 4th quarter growth rates as “V-shaped,” but they would still leave the economy more than five percent smaller than it was in the fourth quarter of 2019. The question is not really the shape, as opposed to the size of the right side of the “V.”)
Anyhow, in his subsequent discussion Drezner focuses on projections for the state of the economy, ignoring what the stock market is supposed to price — the value of future after-tax profits. If a change in policy has zero positive impact on economic growth, like a cut in corporate income taxes or a strong anti-union measure, but is expected to increase after-tax profits, we would expect it to lead to a rise in stock prices.
The willingness of Congress and the president to give a massive bailout that looks very favorable to corporate interests likely was viewed by investors as a signal that the politicians in Washington were determined to limit the damage that corporations faced as a result of the pandemic. There is little reason to believe that they were looking at how well the economy would do. (Krugman’s line, that they expect a very weak economy and therefore very low interest rates, is an exception to this view.)
Anyhow, no reasonable person would make a serious economic projection based on the Yankees prospects for winning the World Series, nor should they make economic projections based on fluctuations in the stock market.
Daniel W. Drezner used his Washington Post column to contribute to the confusion around the stock market and the economy. He picks up from prior pieces by Paul Krugman and Desmond Lachman as to whether the recent run-up in the economy means investors are expecting a strong recovery.
(Drezner unfortunately refers to the question of a V-shaped recovery. The Congressional Budget Office projects that the economy will shrink at a 39.6 percent annual rate in this quarter, and then grow at 23.5 percent and 10.5 percent annual rates in the third and fourth quarters, respectively. It would be hard not to view the projected 3rd and 4th quarter growth rates as “V-shaped,” but they would still leave the economy more than five percent smaller than it was in the fourth quarter of 2019. The question is not really the shape, as opposed to the size of the right side of the “V.”)
Anyhow, in his subsequent discussion Drezner focuses on projections for the state of the economy, ignoring what the stock market is supposed to price — the value of future after-tax profits. If a change in policy has zero positive impact on economic growth, like a cut in corporate income taxes or a strong anti-union measure, but is expected to increase after-tax profits, we would expect it to lead to a rise in stock prices.
The willingness of Congress and the president to give a massive bailout that looks very favorable to corporate interests likely was viewed by investors as a signal that the politicians in Washington were determined to limit the damage that corporations faced as a result of the pandemic. There is little reason to believe that they were looking at how well the economy would do. (Krugman’s line, that they expect a very weak economy and therefore very low interest rates, is an exception to this view.)
Anyhow, no reasonable person would make a serious economic projection based on the Yankees prospects for winning the World Series, nor should they make economic projections based on fluctuations in the stock market.
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No one wants to die, but hey, who wouldn’t be willing to sacrifice their life to protect someone’s patent monopoly? That is a question that is implicitly raised in this New York Times piece on the race to develop an effective vaccine against the coronavirus. Near the beginning the piece tells readers:
“In an era of intense nationalism, the geopolitics of the vaccine race are growing as complex as the medicine. The months of mutual vilification between the United States and China over the origins of the virus have poisoned most efforts at cooperation between them. The U.S. government is already warning that American innovations must be protected from theft — chiefly from Beijing.”
Okay, what does “theft” by China, or anyone else, mean in this context? Would China be preventing U.S. scientists from moving ahead with the development of a vaccine? Would it be preventing drug companies from manufacturing and distributing the vaccine?
Of course, neither of these possibilities makes any sense. Nothing China might do with knowledge gained from U.S. researchers would obstruct our own development of a vaccine. The only “risk” here is that China might jump ahead and be able to vaccinate its own people, and possibly people in other countries (including the U.S.) before a U.S. produced vaccine is available. This could be an embarrassment to Donald Trump and may also reduce the potential profits of U.S. drug companies, but it could mean that hundreds of thousands of lives are saved.
Apparently the New York Times didn’t think it was worth mentioning that the Trump administration’s policies might lead to massive loss of life to protect his ego and industry profits, but that is the unavoidable implication of the information in the article.
No one wants to die, but hey, who wouldn’t be willing to sacrifice their life to protect someone’s patent monopoly? That is a question that is implicitly raised in this New York Times piece on the race to develop an effective vaccine against the coronavirus. Near the beginning the piece tells readers:
“In an era of intense nationalism, the geopolitics of the vaccine race are growing as complex as the medicine. The months of mutual vilification between the United States and China over the origins of the virus have poisoned most efforts at cooperation between them. The U.S. government is already warning that American innovations must be protected from theft — chiefly from Beijing.”
Okay, what does “theft” by China, or anyone else, mean in this context? Would China be preventing U.S. scientists from moving ahead with the development of a vaccine? Would it be preventing drug companies from manufacturing and distributing the vaccine?
Of course, neither of these possibilities makes any sense. Nothing China might do with knowledge gained from U.S. researchers would obstruct our own development of a vaccine. The only “risk” here is that China might jump ahead and be able to vaccinate its own people, and possibly people in other countries (including the U.S.) before a U.S. produced vaccine is available. This could be an embarrassment to Donald Trump and may also reduce the potential profits of U.S. drug companies, but it could mean that hundreds of thousands of lives are saved.
Apparently the New York Times didn’t think it was worth mentioning that the Trump administration’s policies might lead to massive loss of life to protect his ego and industry profits, but that is the unavoidable implication of the information in the article.
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