Prosperity for the People

The Speech That TED Won't Show You

by Jim Tankersley, National Journal

May 16, 2012

Prepare to meet Nick Hanauer. He's a venture capitalist from Seattle who was the first non-family investor in Amazon.com. Today he's a very rich man. And, somewhat jarringly, he's screaming to anyone who will listen that he, and other wealthy innovators like him, doesn't create jobs. The middle class does - and its decline threatens everyone in America, from the innovators on down.

You'll read a lot more about Hanauer in the next installation of Restoration Calls, which drops tomorrow. In the meantime, check out the full text of a speech Hanauer gave in March at the TED University conference. You can't find the talk online, because TED officials have declared it too politically controversial to post on their web site. You be the judge:

How Economists Contributed to the Financial Crisis

by John T. Harvey, Professor of Economics at Texas Christian University

February 6, 2012

 A lot of blame has been spread around regarding the financial collapse and the onset of the Great Recession. Greedy speculators, big banks, Wall Street executives, and Fannie Mae and Freddie Mac have all taken turns as whipping boys. But one group has largely avoided their fair share of attention: economists. They were the ones who provided the intellectual justification for the transformation of our economy over the past thirty years. They stood idly by as jobs went overseas, demand was sapped by increasingly uneven distributions of income, competition was destroyed by lax attitudes towards antitrust laws, and safeguards were discarded in the financial sector. More than that, many actually praised these events. This is not insignificant. Much of the financialization of the U.S. economy (the shift from producing goods and services to managing financial wealth that played such a central role in our collapse) could not have occurred without economists offering their tacit and open approval. Opposition would have slowed, if not stopped, these trends.

The Big Danger In Cutting The Deficit

Fist published March 18, 2011 at Forbes.com

John T. Harvey is Professor of Economics at Texas Christian University

I have been a professional economist for almost 25 years, but never have I been more concerned about the state of our macroeconomy. Yet it's not so much the current rate of unemployment or GDP growth that has me scared to death; it's the so-called solutions being pursued in Washington.

 

The Future of Economics

Economist Steve Keen's article for the World Economic Forum edition of Bloomberg Brief:

For its entire history, macroeconomics has been dominated by mathematical models that ignore the existence of money, debt and banking, and that perceive the economy’s movement through time as transitions from one state of equilibrium to another.

At any point in history, these would be heroic assumptions. Could it really be true that models without either money or instability are provably superior at predicting the economy’s future course than models in which money and banking exist, and in which the model economy can be out of equilibrium? If not, is it the case then that such models are simply too difficult to construct—that the best we can do is pretend that the economy doesn’t have banks or money, and that it’s always in equilibrium, even if we know these assumptions are false?

 

Cambridge Economist: Free Market Policies Lead to Lower Economic Growth

 The following is an excerpt from University of Cambridge economist Ha-Joon Chang's recent book, 23 Things They Don't Tell You About Capitalism.

 

Thing 7: Free-market Policies Rarely Make Poor Countries Rich

What they don’t tell you

Contrary to what is commonly believed, the performance of developing countries in the period of state-led development was superior to what they have achieved during the subsequent period of market-oriented reform. There were some spectacular failures of state intervention, but most of these countries grew much faster, with more equitable income distribution and far fewer financial crises, during the ‘bad old days’ than they have done in the period of market-oriented reforms. Moreover, it is also not true that almost all rich countries have become rich through free-market policies. The truth is more or less the opposite. With only a few exceptions, all of today’s rich countries, including Britain and the US – the supposed homes of free trade and free market – have become rich through the combinations of protectionism, subsidies and other policies that today they advise the developing countries not to adopt. Free-market policies have made few countries rich so far and will make few rich in the future.

 

Two basket cases

Here are the profiles of two developing countries. You are an economic analyst trying to assess their development prospects. What would you say?

Debunking Economics 2.0

Australian economist Steve Keen was one of the few to predict the financial crisis. His brilliantly insightful book, Debunking Economics, is now out in a revised edition. You can read the introduction to the first edition here.

 

From the publisher:

Debunking Economics exposes what many non-economists may have suspected and a minority of economists have long known: that economic theory is not only unpalatable, but also plain wrong. When the original Debunking was published back in 2001, the market economy seemed invincible, and conventional 'neoclassical' economic theory basked in the limelight. Steve Keen argued that economists deserved none of the credit for the economy's performance, and that 'the false confidence it has engendered in the stability of the market economy has encouraged policy-makers to dismantle some of the institutions which initially evolved to try to keep its instability within limits'. That instability exploded with the devastating financial crisis of 2007, and now haunts the global economy with the prospect of another Depression.

In this radically updated and greatly expanded new edition, Keen builds on his scathing critique of conventional economic theory whilst explaining what mainstream economists cannot: why the crisis occurred, why it is proving to be intractable, and what needs to be done to end it.

Essential for anyone who has ever doubted the advice or reasoning of economists, Debunking Economics provides a signpost to a better future.

 

About the Author:

Steve Keen is Associate Professor of Economics & Finance at the University of Western Sydney. Steve predicted the financial crisis as long ago as December 2005, and warned that back in 1995 that a period of apparent stability could merely be 'the calm before the storm'. His leading role as one of the tiny minority of economists to both foresee the crisis and warn of it was recognised by his peers when he received the Revere Award from the Real World Economics Review for being the economist who most cogently warned of the crisis, and whose work is most likely to prevent future crises.

In Defense of Deficits

 
photo by billjacobus1 

In Defense of Deficits

James K. Galbraith

This article appeared in the March 22, 2010 edition of The Nation.

James K. Galbraith holds the Lloyd M. Bentsen, Jr., Chair in Government / Business Relations at the University of Texas at Austin. He holds degrees in economics from Harvard and Yale and served on the staff of the U.S. Congress.

 

The Simpson-Bowles Commission, just established by the president, will no doubt deliver an attack on Social Security and Medicare dressed up in the sanctimonious rhetoric of deficit reduction. (Back in his salad days, former Senator Alan Simpson was a regular schemer to cut Social Security.) The Obama spending freeze is another symbolic sacrifice to the deficit gods. Most observers believe neither will amount to much, and one can hope that they are right. But what would be the economic consequences if they did? The answer is that a big deficit-reduction program would destroy the economy, or what remains of it, two years into the Great Crisis.

For this reason, the deficit phobia of Wall Street, the press, some economists and practically all politicians is one of the deepest dangers that we face. It's not just the old and the sick who are threatened; we all are. To cut current deficits without first rebuilding the economic engine of the private credit system is a sure path to stagnation, to a double-dip recession--even to a second Great Depression. To focus obsessively on cutting future deficits is also a path that will obstruct, not assist, what we need to do to re-establish strong growth and high employment.

To put things crudely, there are two ways to get the increase in total spending that we call "economic growth." One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that's basically all there is. Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors--public deficits or private loans--has to be in action.

Low Taxes [on the Rich] Are the Problem, Not the Solution

 

By Moshe Adler

Truthdig, Dec 11, 2010

Moshe Adler teaches economics at Columbia University. This piece is based on his book “Economics for the Rest of Us: Debunking the Science That Makes Life Dismal” (The New Press).

“Every economist that I’ve talked to … acknowledges that this [tax] agreement would boost economic growth in the coming years and has the potential to create millions of jobs,” President Barack Obama said this week. But if low taxes are the solution, this must mean that high taxes are the problem. Yet the Bush tax cuts are already in effect; taxes are therefore low already, and the unemployment rate is nevertheless close to the same level that it was at a year ago and has risen in the last month. Nor did the Bush tax cuts boost the economy after they were passed in 2003, their name—“The Jobs and Growth Tax Relief Act”—notwithstanding. In fact, the evidence shows that tax policies alone have no effect on the state of the economy. What is the problem, then? 

The problem is that the level of uncertainty in the economy is so high that investors and entrepreneurs—not buyers and sellers of stocks on Wall Street but actual investors who build or expand places of work and install new pieces of equipment and machinery in them—have lost confidence in their own ability to predict what a good investment will be. With such uncertainty, it is no wonder that investors are not borrowing and that banks are not lending. 

If uncertainty and a low level of investment are the problem, what is the solution? The current uncertainty in the economy was brought about by the subprime crisis, and there is little that the government can do to decrease it. But there is a lot that the government can do to increase uncertainty, and President Obama and the Republicans are doing it all. 

At exactly the same time that the President’s Deficit Commission announced its recommendations about how to reduce our deficits, including the projected deficit within the Social Security system, Obama has announced an agreement for the continuation of the Bush-era tax cuts for the rich and a reduction of 2 percent in the Social Security tax for all. Only a fool would invest in an economy with deficits that are not only huge but are being increased deliberately at exactly the time that Obama himself has said that they must be reduced.

But reducing the deficits without increasing taxes will require increases in the prices of all government-provided goods and services, including university education, public transportation and parks, and services that were until now free will no longer be. (In several cities people now have to pay a “crash tax” for ambulance and firefighting if they are in a car accident to which such emergency units respond.) The result will be a significant decrease in the purchasing power of middle-income families that calls for decreasing, instead of increasing, production capacity and investment. 

It is not inconceivable that 13 months from now, after the extension of unemployment benefits expires, the Obama/Republican plan will result in the kind of street riots we’ve begun to see across Europe, led here by the unemployed. The larger-than-ever deficit will make renewing the extension of unemployment benefits unacceptable, particularly to a Republican-dominated House. University students fed up with higher tuitions and employed workers fed up with the high prices for government services could even join in. In an economy with an impoverished middle class and political instability, investors will become even harder to find. 

The only way to reduce the uncertainty in our economy right now is to increase taxes. During the Eisenhower years the top tax rate was 91 percent, and there is every reason to return to this rate now. Nevertheless, even after taxes are raised it will take some time for investments to flow. This is because in addition to the uncertainty, the damage that the subprime crisis inflicted—not on banks, but on homeowners and other victims—remains very real. 

How might investments be increased in the meantime, then? Private investors are not the only ones capable of investing. When it comes to the government, there is no uncertainty about what good investments are. Our needs are self-evident and the list is long. We need more schools and more teachers. We need more universities and more medical schools. We need to repair our roads and fix our bridges. Practically all our public services are in dire need of investments, and the number of jobs these investments could create would far exceed the number of the unemployed.

Extending the Bush tax cuts and reducing the Social Security tax will only increase the level of uncertainty in the economy and discourage investment. Only by taxing the rich can we close the deficit, reduce uncertainty and begin to make public investments, both because we desperately need them and because we desperately need the jobs that they will create.

http://www.truthdig.com/report/item/low_taxes_are_the_problem_not_the_solution_20101211/

Billions in Profit. Zero in Taxes.

 

via The New York Times:

G.E.’s Strategies Let It Avoid Taxes Altogether

By David Kocieniewski

General Electric, the nation’s largest corporation, had a very good year in 2010.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less....

http://www.nytimes.com/2011/03/25/business/economy/25tax.html

Debunking Economics

 

Excerpt from: Debunking Economics by University of Western Sydney economics professor Steve Keen.

http://www.powells.com/biblio/72-9781856499927-0

Introduction: No more Mr Nice Guy

Why the public needs to know that economics is intellectually unsound

 

Why have we handed over the running of the world to economists?

 

It is hardly because economics has won the intellectual equivalent of a popularity poll or election. In fact, if anything, economics is deeply unpopular, and its unpopularity spans all social spectra. The demonstrations against the IMF and other institutions in Seattle, Washington, Davos, Melbourne and Prague were fundamentally demonstrations against the proposition that the world should be reshaped in accordance with economic theory. Those events were simply the most dramatic of many protests which have frequently cut across the standard Left-Right divide of political debate, uniting the most unlikely of bedfellows against the policy recommendations of economists.

 

Only parties of the middle - the Democrats and Republicans of America, the Social Democrats or Christian Democrats of Europe, England's Conservative Party and 'New Labour', Australia's Liberal and Labor Parties - espouse the policies of economics. Parties which are more avowedly Left and Right often express economic attitudes which are diametrically opposed to policies of centrist parties, but are remarkably similar to each other - with their similarity derived from a shared disdain for conventional economic thought. However, because centrist parties have almost always been in power, the economic policies they champion have shaped the modern world.