“In a world in which economic reality mattered to politicians, grandiose spending plans coupled with soaring government debt would pretty much preordain grim tax policy. But we don’t live in that world. In ours, tax and spending proposals are crafted based on their appeal to target audiences of voters, with no regard for balancing books or averting financial catastrophe.”
“It’s necessary, though probably pointless, to emphasize that neither Trump’s nor Biden’s tax plans come close to paying for the federal government’s anticipated spending spree in the years to come.”
The Real News Podcast – Modern Monetary Theory – A Debate Between Randall Wray and Gerald Epstein The Real News. 2019. https://www.spreaker.com/user/therealnews/the-real-news-podcast-modern-monetary-th Is MMT “America First” Economics? Gerald Epstein. 3 20 2019. Institute for New Economic Thinking. https://www.ineteconomics.org/perspectives/blog/is-mmt-america-first-economics On Modern Monetary Theory
“the U.S. trade gap is on track to exceed $600 billion this year. That would be the highest since 2008, just before the global financial crisis.
The monthly deficit in U.S. goods trade with all other countries set a record high in August at more than $83 billion.
Trump has blamed the trade deficit on bad trade deals negotiated by his predecessors and unfair trade practices by other countries, but most economists disagree with that explanation.”
“A variety of factors contributed to Trump’s failure to eliminate the trade gap, which White House trade adviser Peter Navarro predicted in 2016 could be erased in one or two years.
Overall trade remains depressed compared to year-ago levels because of the coronavirus pandemic.
But the massive U.S. government stimulus payments to businesses and consumers have helped U.S. imports recover faster than U.S. exports. That explains why the monthly goods deficit has increased from the average level of $73.3 billion in 2019.
However, even without the pandemic, Trump’s practice of piling tariffs on China and selected other products like steel and aluminum was never going to turn around the deficit, most economists agree.”
” The large U.S. trade deficit is fundamentally driven by larger economic factors — like the fact Americans spend more than they save and have to borrow from abroad to finance the difference”
“Trump’s $1.5 trillion tax cut in 2017 contributed to that problem by running up the U.S. budget deficit.”
“Looking at trade in 2019, the last full year of data, the overall U.S. trade deficit fell by less than 1 percent from the previous year to $577 billion. However, the bilateral trade deficit with China fell by a much more impressive 17 percent to $345 billion as importers turned to other countries such as Mexico, Vietnam, Taiwan, South Korea, Japan and members of the EU.”
““We would say one of the big failures of the Trump administration with respect to trade policy is the failure to address currency misalignment in any kind of meaningful way,” said Thea Lee, president of the Economic Policy Institute, a left-leaning think tank aligned with union groups. “Putting a couple of sentences into the deal, but without a clear road map as to how it’s going to be instrumentalized, doesn’t really do very much.””
“Trump’s revised NAFTA agreement with Mexico and Canada does include strong protections for workers rights, which helped the pact win overwhelming approval in the Democratic-controlled House. But the fact that labor concerns were not addressed in the China agreement “just shows that the Trump administration is not driven by any principles in this area, but simply by political expediency,” Lee said.
The administration hails China’s agreement as part of the phase one trade deal to purchase $200 billion more of U.S. goods and services in 2020 and 2021, compared with the record it set in 2017.
But the data released on Tuesday shows that China is well behind on that goal. During the first eight months of this year, it had imported just $69.5 billion worth of U.S. farm and manufactured goods, compared to $80.2 billion in the same period in 2017.
U.S. farmers were hit so hard by Trump’s tariff war with China that his administration doled out more than $20 billion in emergency aid payments to help cushion the blow.
U.S. farm exports to China had reached as high as $25 billion annually a few years before Trump was elected. But they plummeted to $6.8 billion in fiscal 2019 after Beijing retaliated against Trump’s tariffs by raising its own duties on U.S. farm exports.”
“The 400-plus page report, written by the majority staff of the Democratic members of the House Judiciary Subcommittee on Antitrust, is the result of a 16-month investigation into whether these corporate giants abuse their power, and whether the country’s antitrust laws need to be reworked to rein them in. The report released Tuesday cites numerous examples of each tech titan engaging in acts that the lawmakers believe have hurt innovation and impede competition. While the anti-competitive behaviors cited vary from company to company, they are all linked by the allegation that the four giants abuse their gatekeeper status in various internet industries to secure and grow their market power in those sectors and others.”
“Reauthorized by Congress in December 2019 with the promise that it would suddenly change its ways and focus its firepower on fighting China, this export credit agency quickly returned to its tired routine of propping up its old and favorite customers, including—very prominently—Petroleos Mexicanos, or Pemex.”
“Ex-Im Bank approved $400 million in financing to this Mexican government-owned oil company.”
“Pemex is in serious financial trouble. It could very well collapse, despite its privileged position in Mexico. A pandemic-induced drop in oil prices combined with years of mismanagement have left Pemex technically insolvent. It’s already the world’s most-indebted oil company and one of the largest issuers of debt in Latin America.”
“Pemex has been corrupt for years. In July 2020, its former chief executive was arrested in Spain (where he had been hiding to evade a Mexican arrest warrant) and extradited. He’s now a protected witness in an expansive bribery scandal involving three of Mexico’s former presidents, four former finance ministers, two presidential challengers, two state governors and a number of legislators.”
“Now Ex-Im is justifying its financing to Pemex with the go-to excuse that it “would help counter financing competition from foreign export credit agencies, including from China.” This claim is dubious. In the bill to reauthorize Ex-Im last December, Congress did include what it calls the Program on China and Transformational Exports. It specified 10 sectors for the program, such as artificial intelligence, renewable energy, water treatment and sanitation. However, the list doesn’t include oil and gas. Nearly a quarter of Ex-Im’s overall exposure is in that sector, so Ex-Im’s long-standing connections to the industry—rather than a desire to counter China—are probably why the bank continues to deepen ties with Pemex.
This brings us to another question: How can some members of Congress reconcile subsidizing so many foreign oil and gas companies in light of their stated concerns about climate-related issues? Pemex’s record on that front should particularly disturb those who so loudly proclaim their environmental interests.”
“The overarching lesson from this mess is that Congress was unrealistic to expect Ex-Im to change its ways. The bank can assert that things will be different, or that it will now focus on fighting China, but at the end of the day, its relationship with Pemex stretches back more than 70 years—a fact about which the agency boasts in its press release.
As long as Ex-Im holds tight to its favored companies, nobody should expect major results in any so-called transformational sectors. Old dogs won’t learn new tricks.”
“doesn’t the logic of part I — the acceptance that my standard of living is in some fundamental way unearned — justify what I will call Gentle Socialism — a dramatically larger redistributive effort than what we currently have in America? Shouldn’t the top rate of income tax be at least 70%? Isn’t a wealth tax of 2% or more, a good idea? Shouldn’t we consider a maximum level of income, say $1 million or maybe $10 million and have a tax rate of 100% of everything above that cap? Any of these proposals would go beyond Sweden say, and take us closer to something more egalitarian.”
“Some people seem to confuse material well-being with money. If you’re not careful, you might come to think that there’s a fixed amount of money in the world and the rich have a disproportionate share of it. Justice means simply reorganizing who has that money. This is the world of zero-sum economics. It is not the real world or at least not the one with real-world consequences.”
“While wealthy people may have a fairly large amount of cash on hand, most of their wealth is usually in the form of assets. Wealth is a result of investment in assets, the result of people spending less than they receive in income and the using the difference to buy shares of companies or to lend out money in return for interest. Those investments create capital — it’s what fuels innovation. Capital assets are expected to yield benefits in the future. So an investor is giving up consumption today for more consumption tomorrow — the return or their foregoing of consumption.
Capital makes workers more productive. Innovation makes our lives better. Not just the people who funded the innovations who often earn large returns for taking risks, but the people who enjoy the products and the workers who use the machines that make those workers more productive. If everyone has no more than an ox and a plow and has to farm to stay alive, no one is rich. And every once in a while, the rains don’t come and some people starve. Investment and innovation lets a lot of people get rich. Once someone invents a grain combine and the other tools of modern farming, you get a lot more food, the price of food is a lot lower, not everyone has to be a farmer and the person who invented the grain combine has enough money to fund some new companies that can find new ways to make people more productive.
If you start taxing wealth and if you tax income at really high rates, you’re probably going to get less of it. But it’s not just that the super-rich will have to share their money with the rest of us. They’re going to save and invest less because the tax system is going to take some of the gains away. If that happens, it won’t just hurt the rich. It will hurt people who benefit from the savings and investment that rich people make in making the rest of us more productive.”
“I would suggest that the world would be a better place if we spent more time as economists looking for ways to allow the poor the chance to flourish and to lead lives of dignity and agency rather than trying to measure the gap between rich and poor and proposing ways to close that gap with money.”
“Is $100 billion all that stands between ending homelessness and giving everyone in America clean water? If that’s true, what a brutal indictment of our government’s ability to solve problems. In 2019, according to the Congressional Budget Office, the federal government spent $4.4 trillion. If only taxes had been set high enough to raise $4.5 trillion! Then we could have cured homelessness and provided everyone with clean water.”
In fact, taxes weren’t really the problem at all. In 2019, the federal government collected $3.5 trillion running a deficit of $900 billion. Sanders’s claim is that an increase in the 2019 deficit of a mere 10% could have ended homelessness and provided everyone with clean water.
What should we conclude? One possibility is that homelessness cannot be solved by spending more money. I think this is true. I also think that the other “socialist” solutions on the table lately like free college, free universal health care, free child-care and so on would not be particularly effective in solving the problems they are meant to solve. The government doesn’t have the best track record of spending money effectively.
But the other reason that we don’t “solve” the problem of homelessness is that the political system responds to political power. Homelessness just isn’t at the top of most politician’s to-do lists.
Of that $4.4 trillion worth of federal spending in 2019, about $700 billion went to defense spending. Would the nation have been unsafe if spending had been a mere $600 billion? The $4.4 trillion the government spent included subsidies to wealthy farmers, subsidies to the education of wealthy individuals attending college via federal student loan programs. It also included Social Security and Medicare payments to individuals many times about the poverty line.
In other words, even though I do not deserve what I have, it is far from clear that increasing the size of government revenue by raising tax rates dramatically will lead to a better world even if I thought giving poor people money would improve their lives. We are likely to get a bunch of other stuff that we will not particularly like.”
“I realize that the case of pure socialism is something of a straw man. In the next part of this series I’ll look at the case for simply more redistribution than we have now. But a look at pure socialism on both practical and what I would call spiritual grounds is still illuminating.”
“GDP in the US is currently about $21 trillion. There are about 250 million Americans over the age of 18. So that’s about $84,000 per adult. How about a system that gives $84,000 to every adult over the age of 18? Earn above $84,000 and you pay a tax of 100%. Earn less than $84,000 and you get a check to make up the difference. Bianca and I would be on the same footing. Bianca currently makes something on the order of $30–40,000. Pure socialism would roughly double her standard of living.”
“Full equality simply wouldn’t work very well. If you earn $80,000 you’d get a check for $4,000. If you earn $14,000 (roughly the Federal minimum wage for full-time work) you’d get a check for $70,000. And if you don’t work at all, you’d get a check for $84,000. Some people love what they do or feel some kind of calling to their work and those people might keep doing what they’re doing. But some people will stop working and enjoy the same consumption as someone working two or three jobs to make $50,000.
A policy that equalizes income at $84,000 isn’t a safety net. It’s a safety hammock. Some people would choose to relax in it.”
“GDP isn’t going to stay at $21 trillion. Even if everyone currently earning less than $84,000 stopped working entirely, GDP wouldn’t fall by half because the top half of the income distribution produces more than half of the output. But GDP would almost certainly fall.”
“people currently earning more than $84,000 would work a lot less as well, knowing that any income over $84,000 would go to someone else. So the standard of living wouldn’t be sustainable at $84,000. It would be something less and whatever that lower number is, it probably wouldn’t grow much over time — the incentive to invest and innovate would be smaller. Not a zero rate of growth — as before, money isn’t the only motivator. A lot of people would still try to create new things. But presumably the growth rate would fall fairly dramatically.”
“If everyone earns the same amount after tax, you don’t care what your market wage is. So wages won’t motivate you to do something unpleasant or something that takes skills that can only be acquired over a long period of time. Why would anyone want to wash dishes or cut lawns on hot days or work at a garbage dump? Or do anything that is dangerous? Better to stay home and collect your check”
“The fact that basketball actually pays more than ballet is not irrelevant. The dramatically higher salary of an NBA star relative to ballet is telling Lebron that he is much more valuable as a basketball player than a ballet dancer. That dramatically higher salary is telling Lebron that a lot more people are willing to pay a lot more money to see him dance with a basketball than to dance with a ballerina.
The money is telling him something. It’s not telling him he has to be a basketball player. But it tells him something about what it costs him to be a ballet dancer. It’s pushing him toward basketball.
That’s what salaries do in a market economy. They send us signals. The signals are sometimes distorted — they can ignore costs and push us to do something tawdry but financially pleasant. They can understate what the full impact of something is. Hard as it is to believe, many people are able to enjoy Lebron James without buying tickets to Lakers games or buying his jersey or watching him on television. You can actually make the case he’s underpaid. But ignore that. The point is that salaries and prices more generally are imperfect. But they’re not irrelevant.
When you go to a world of complete equality, salaries play no role in assigning people to tasks. That task has to be performed by some other mechanism, usually the State, which means that a bunch of people with little or no skin in the game have the job of figuring out who should do what. That isn’t going to turn out very well. It certainly didn’t work well in the Soviet Union where the workers in the workers’ paradise had an informal motto: we pretend to work and they pretend to pay us.
So pure socialism doesn’t work very well in the sense that I don’t think Bianca would be better off in that world in the sense of material well-being. This is essentially Rawls’s criterion for redistribution — we should maximize the well-being of the poorest member of society. Bianca’s not the poorest but the point is similar. I think Bianca would have a lower standard of living and her children would have less of a chance to flourish — the world would be a more static place. And by a lower standard of living, I don’t mean just a little lower. Without incentives and the informational content of wages, we couldn’t achieve anything like a modern standard of living for 330 million people. We’d be much much poorer in material ways with consequences for non-material aspects of our life like health.”
“Later I got to thinking. Is there anything just or fair about the differences between Bianca and me, between her son and my children? And the answer is, of course not. I don’t deserve the comfortable life I have relative to hers. Oh, I can fool myself and talk about the time and effort it took to attend graduate school, but as I outlined above, there was so much luck in all of that.
I can cook up a story that makes the differences between Bianca and me seem more fair than they are, the kind of story economists tell about why some jobs pay a little and some pay a lot. Those stories are true, I think, as far as they go. My skills are much more valuable than Bianca’s. A lot of people can shine shoes. Not as many people can learn enough economics to explain it to people and help them understand it. The demand to understand economics is much greater than the demand for shined shoes. I have a lot more human capital. I have a Ph.D while Bianca probably didn’t finish college. She may not have finished high school.
All of that is true. All of that explains my higher standard of living. But it doesn’t justify that higher standard of living. She may be a much better person than I am, a better mother than I am a father, a better spouse than I am. I don’t know. But it is strange that because of the luck I describe above, I earn a lot more than Bianca.
All of which is to say that there is a case to be made for taking a lot of the money I earn and giving it to Bianca. A $10 tip is nice, but it’s a drop in the bucket of what it takes to even the score or get close to making our life experiences a little more equal. Of course the federal and state and local governments already takes a lot more money from me than they take from Bianca. And it probably gives a chunk to her. She may be getting the earned income tax credit. Her son probably goes to a public school while my children didn’t. Maybe she is on Medicaid. Maybe she gets food stamps. But surely you can make a case that the government should take a lot more from me than it currently does from people like me who have relatively easy lives and give it to Bianca and those in a situation similar to hers.
So what’s wrong with that?
“What’s wrong with real socialism? Given the injustice or at least non-justice of the current state of the world, why not strive for something dramatically more redistributive? Why not take the justice argument seriously?