mykeystrokes.com

"Do or Do not. There is no try."

“Cronyism Causes The Worst Kind Of Inequality”: Friends Of The Rulers Appropriating Wealth For Themselves

Economic inequality has skyrocketed in the U.S. during the past few decades. That has prompted many calls for government policies to reverse that trend. Defenders of the status quo argue that rising inequality is a necessary byproduct of economic growth — if we don’t allow people the chance to become extremely rich, the thinking goes, they will stop working, investing, saving and starting businesses. A receding tide will then cause all boats to sink.

Critics of the status quo have responded with the claim that inequality doesn’t help growth, but instead hurts it. This view was given ammunition by a number of recent studies, which have found a negative relationship between how much income inequality a country has and how fast it grows. One example is an International Monetary Fund study from 2015:

[W]e find an inverse relationship between the income share accruing to the rich (top 20 percent) and economic growth. If the income share of the top 20 percent increases by 1 percentage point, GDP growth is actually 0.08 percentage point lower in the following five years, suggesting that the benefits do not trickle down. Instead, a similar increase in the income share of the bottom 20 percent (the poor) is associated with 0.38 percentage point higher growth.

A similar 2014 study from the Organization for Economic Cooperation and Development concluded the same thing. Interestingly, the negative correlation between inequality and growth is found even when controlling for a country’s income level. This isn’t simply a case of wealthier countries growing more slowly and also being more unequal.

So the evidence is pretty clear: Higher inequality has been associated with lower growth. But as with all correlations, we should be very careful about interpreting this as causation. It might be that countries whose growth slows for any reason tend to experience an increase in inequality, as politically powerful groups stop focusing on expanding the pie and start trying to appropriate more of the pie for themselves.

The IMF and OECD list some channels by which inequality might actually be causing lower growth. The most important one has to do with investment. When poor people have more money, they can afford to invest more in human capital (education and skills) and nutrition. Because these investments have diminishing marginal returns — the first year of schooling matters a lot more than the 20th — every dollar invested by the poor raises national productivity by more than if it gets invested by the rich. In other words, the more resources shoring up a nation’s weak links, the better off that nation will be.

That’s a plausible hypothesis. But there might also be other factors contributing to the correlation between inequality and growth. It could be that there is something out there that causes both high inequality and low growth at the same time.

The obvious candidate for this dark force is crony capitalism. When a country succumbs to cronyism, friends of the rulers are able to appropriate large amounts of wealth for themselves — for example, by being awarded government-protected monopolies over certain markets, as in Russia after the fall of communism. That will obviously lead to inequality of income and wealth. It will also make the economy inefficient, since money is flowing to unproductive cronies. Cronyism may also reduce growth by allowing the wealthy to exert greater influence on political policy, creating inefficient subsidies for themselves and unfair penalties for their rivals.

Economists Sutirtha Bagchi of the University of Michigan and Jan Svejnar of Columbia recently set out to test the cronyism hypothesis. They focused not on income inequality, but on wealth inequality — a different, though probably related, measure. Concentrating on billionaires — the upper strata of the wealth distribution — they evaluated the political connections of each billionaire. They used the proportion of politically connected billionaires in a country as their measure of cronyism.

What they discovered was very interesting. The relationship between wealth inequality and growth was negative, as the IMF and others had found for income inequality. But only one kind of inequality was associated with low growth — the kind that came from cronyism. From the abstract of the paper:

[W]hen we control for the fact that some billionaires acquired wealth through political connections, the effect of politically connected wealth inequality is negative, while politically unconnected wealth inequality, income inequality, and initial poverty have no significant effect.

In other words, when billionaires make their money through means other than political connections, the resulting inequality isn’t bad for growth.

That’s a heartening message for defenders of the rich-country status quo. If cronyism is the real danger, it means that a lot of the inequality we’ve seen in recent decades is benign. Eliminate corrupt connections between politicians and businesspeople, and you’ll be safe.

But Bagchi and Svejnar’s finding cuts two ways. It also means that plain old inequality isn’t beneficial for growth, as its defenders have claimed. That removes one of the big objections government policy makers face in talking steps to reduce inequality — and that doing so is unlikely to hurt economic growth.

 

By: Noah Smith, Bloomberg View, Bloomberg Politics, December 24, 2015

December 28, 2015 Posted by | Crony Capitalism, Economic Growth, Economic Inequality | , , , , , , , , | 2 Comments

“It’s Not The Media–It’s Just The GOP Base”: Locked In An Increasingly Hostile Defensive Crouch Against Reality

Bill Schneider at Reuters wrote a piece this week that garnered some attention claiming that the GOP primary disaster is the fault of the media. His argument goes that modern television journalism has created a reality show environment where the most outrageous hucksters perform the best and where quality candidates and policy positions are lost in the undertow. It’s a sentiment shared by many political observers. Schneider writes:

In a contest controlled by the media, personality beats policy. Candidates with colorful and attention-grabbing personalities have the advantage. Even candidates with abrasive personalities, like Donald Trump. And goofy personalities, like Ben Carson.

The process also rewards candidates with well-honed debating skills like Florida Senator Marco Rubio and Texas Senator Ted Cruz. Even though debating skill may not be an essential quality of a great president. Things like a solid record of achievement, practical ideas and endorsements by one’s peers get discounted in today’s media-driven process. Bush’s new slogan – “Jeb Can Fix It” — does not seem to be catapulting him into the lead.

With all due respect, this argument is more than a little bit of wishful thinking. People who make this claim have an idea in their heads of what they think politics should be: a series of competing resumes and white paper policy proposals soberly adjudicated by voters who furrow their brows at community forums. It’s a quirk of certain types of journalists, good government advocates and centrist think tank gurus to believe this about elections, and to favor uninspiring candidates.

But that’s frankly not how major elections work, nor how they have ever worked at least since the advent of television.

There’s nothing different in the press environment in 2015 than there was in 2011. This supposed media-driven reality TV campaign hasn’t seemed to turn the Democratic primary into a circus–rather, the Democratic primary has so far been conducted mostly with grace and the seriousness the issues deserve, in spite of a media that seems far more concerned with Clinton’s emails and the precise definition of socialism, than in the actual policy problems the country faces.

The difference this year isn’t the media. It’s the GOP base. Something has happened over the last 15 years in the American conservative psyche that most journalists and centrist political observers don’t want to admit. Conservatives are locked in an increasingly hostile defensive crouch against reality and demographic trends. Supply-side economics, once unquestioned in its Reagan ascendancy, has been shown to be a failure on multiple levels. President George W. Bush’s signature war in Iraq turned out to be a bungled disaster. Secularism is on the rise, gays can legally get married, and America is fast becoming a minority-majority nation. Climate change and wealth inequality are the two most obvious public policy problems, neither of which has even the pretense of a credible conservative solution. This, combined with the election of the first African-American president, has had a debilitating effect on the conservative psyche, which now sees itself under assault from all directions.

Conservatives have responded by creating their own alternative reality in which rejection of basic facts and decency in the service of ideology is a badge of merit and tribal loyalty. That has created an environment in which the most popular voices tend to be the most aggressive and outlandish.

In this context, the fact that Trump, Carson and Cruz have a stranglehold on the GOP presidential race has almost nothing to do with the media and everything to do with the state of the GOP base.

That the turn toward extremism seems so sudden is a mere accident of history. In 2004 George Bush rode to a narrow victory on the strength of a still-terrified American public. 2006 saw Republicans get shellacked across the board, and the financial crisis took the wind out of GOP sails and made a 2008 Democratic victory almost certain. Even then, the trend was apparent when John McCain selected Sarah Palin as his running mate to wild applause, and then she overshadowed him among conservatives and became the better-loved figure. Barack Obama’s election was followed by a grandiose temper tantrum over a Heritage Foundation, Mitt Romney-inspired healthcare law, leading to a Tea Party insurgency that provided huge gains to Republicans in 2010 and demonstrated where the true power in the Party lay.

That Mitt Romney became the nominee in 2012 was almost a fluke: for months the collection of anti-establishment candidates had more support then Romney, and toward the end Newt Gingrich and Rick Santorum of all people combined for greater support than Romney achieved. Romney only won because the real GOP base split its vote. And the rest is recent history.

This is what the GOP base really is and what it has become. The media has little to do with it, except insofar as it has hidden and failed to report the Republican Party’s unilateral march toward reality-free extremism.

 

By: David Atkins, Political Animal Blog, The Washington Monthly, November 22, 2015

November 23, 2015 Posted by | GOP Base, GOP Presidential Candidates, Media | , , , , , , , | 3 Comments

“Failure To Fact Check”: The Real Problem With The CNBC Debate Was The Moderators’ Inability To Call Out The GOP’s Nonsense

Big applause lines: “lamestream media,” a la Sarah Palin, or “Democrats who have the ultimate super PAC, it’s called the mainstream media,” a la Rubio. When in doubt, bash the media.

And it didn’t take long before the Republican National Committee blasted out a press statement that because of the CNBC debate, it was ready to cancel the party’s upcoming NBC debate. Over the weekend, the various campaigns met to “set the rules” about future debates.

Now let me get this straight: the Republicans get 24 million viewers on Fox, 23 million viewers on CNN and 14 million viewers on CNBC – up against the second game of the World Series – and they are complaining? Trump bragged about how he and Ben Carson changed the rules of the CNBC debate by threatening to pull out. Maybe this group would like to determine not only who asks the questions but what the questions are?

But make no mistake, it plays to their base to bash journalists and it also serves to intimidate the media. Sad but true.

If there was a fault with CNBC it was that the moderators were not tough enough on this crowd of candidates. They raised questions that were answered falsely or not at all and did not hold the candidates’ feet to the fire. There simply weren’t enough follow up questions. Whether they were intimidated or did not have the full research in front of them is hard to say, but they should have pushed harder.

Some examples: Cruz would not answer the question about his opposition to the debt limit and instead used his time to attack moderator Carl Quintanilla. Finally, Cruz shot back: “You don’t want to hear the answer.” It reminded me of the great scene in “A Few Good Men” when Jack Nicholson loses it on the stand and shouts, “You can’t handle the truth!”

Cruz should be forced to compare his position on raising the debt limit to Ronald Reagan’s and to that of every other president who understood what it would do to the country if we were to default.

Becky Quick asked Donald Trump about his criticism of Mark Zuckerberg for urging an increase in visas and Trump shot back that it was false. She backed off, but in fact it was true. Trump’s claim got a “Pants on Fire” from Politifact.

Carly Fiorina made the outrageous statement that 92 percent of jobs lost during President Barack Obama’s first term were women’s jobs. Politifact rated that false, and noted that the number of women with jobs actually increased by 416,000.

Ben Carson said it was “total propaganda” to assert he was involved with the disgraced nutritional supplement company, Mannatech, and the anchors had the evidence but, again, did not push back. Politifact also rated Carson’s statements false.

Probably the most important debate should have been on the various tax plans from the candidates. The New York Times editorialized against them,citing the absurdity of the 10 percent and 15 percent flat tax proposals. The effect of the Republicans’ economic policy is the same old trickle down with the biggest tax benefits going to the wealthy who, lord knows, don’t need it. As the Times’ editorial made clear none of the Republicans “has a tax plan coherent enough to be the basis of a substantive discussion, let alone one that could meet the nation’s challenges.”

It is the job of the press and, let’s face it, the Democrats, to point out that this crew of emperors has no clothes.

With all their bashing of the media and the attempt to use it to mobilize their base, it became clear that the Republicans simply did not have the answers. Pollyanish predictions of astronomical economic growth was all they could offer.

The candidates complained afterwards that there wasn’t enough time to talk about substance. Baloney. They simply don’t want hard questions. The most destructive result of all the back and forth after the CNBC debate, complete with the Fox Business Channel attacking CNBC in paid ads, would be if the Republicans intimidate the press and control the format and the questions. After all, this isn’t Russia, the last time I looked.

 

By: Peter Fenn, U. S. News and World Report, November 2, 2015

November 3, 2015 Posted by | CNBC Debate, GOP Primary Debates, Media | , , , , , , , , , | 5 Comments

“Openly Contemplating Possibility He Could Win”: Republicans Come To Terms With Their Worst Trump Nightmare

The tenor of Republican Party rhetoric has darkened. Until recently, most Republican candidates and strategists regarded Donald Trump’s presidential campaign as something ephemeral—a flash in the pan; a storm to be waited out. Now they are openly contemplating the possibility that he could win, or at least ride his steady support all the way to the Republican nominating convention next summer, leaving havoc in his wake.

Consider:

  • On Tuesday, Republican presidential candidate Lindsey Graham said, “If Donald Trump is the nominee, that’s the end of the Republican Party.”
  • Also on Tuesday, Graham’s home state of South Carolina—the first southern state to hold a primary—announced that it would require candidates to sign a pledge promising to support the Republican presidential nominee in the general election, and not launch an independent candidacy. Trump has thus far refused to make such a promise.
  • After a Monday focus group brought Trump’s appeal to the Republican grassroots into sharp relief, GOP pollster Frank Luntz had a mini anxiety attack. “You guys understand how significant this is?” Luntz asked reporters. “This is real. I’m having trouble processing it. Like, my legs are shaking.”

As much as Trump himself is an outgrowth of the reckless way conservatives have stoked the resentment of the Republican Party base, his durability is also an outgrowth of an electoral process conservatives have shaped aggressively. Even if Trump’s ceiling of support is around 30 percent, it’s enough to ride out the primary process—and retain the lead—in a fractured field where almost every candidate has a wealthy patron or two.

In a better-controlled environment, Trump would be a less potent force. As the frontrunner, though, he’s steering the policy debate in ways that have Republican donors and strategists deeply spooked. As Greg Sargent writes at the Washington Post, “his willingness to say what other Republicans won’t has forced out into the open genuine policy debates among Republicans that had previously been shrouded in vagueness or imprisoned within party orthodoxy.”

Right now, Trump has his hand on the third rail of Republican politics. He’s arguing that wealthy people shouldn’t get a pass on paying regular federal income taxes. “The middle class is getting clobbered in this country. You know the middle class built this country, not the hedge fund guys, but I know people in hedge funds that pay almost nothing, and it’s ridiculous, okay?”

For almost any candidate, promising to reduce taxes on rich people is the price of admission into the Republican primary. Trump, by contrast, is poised not only to survive this apostasy, but to singe any of the more orthodox rivals who challenge him.

Senator Marco Rubio’s tax plan represents the most pointed contrast to Trump’s middle-class populism. Rubio proposes not just to lower the top marginal income tax rate, but to completely zero out capital gains taxes. To escape scrutiny for offering such a huge sop to the wealthy, Rubio plans to fall back on his origin story—as the son of a bartender who worked at a hotel financed by investors, Rubio can elide the typical criticisms of trickle-down economics, by claiming to be a direct beneficiary of it. This might be an effective diversion against a Democratic politician promising to increase people’s taxes, but against a rapacious developer like Trump, it falls completely flat. Trump would love nothing more than for a career elected official like Rubio to lecture him about the impact tax rates have on investment and growth. Trump has managed to survive in the business world at a number of different capital gains tax rates, whereas Rubio has struggled to stay afloat, and racked up high levels of credit card debt, in the working world.

If Trump were running an insurgent candidacy against Rubio and one other viable Republican, a supply-side platform would fare pretty well. Republican base voters aren’t as doctrinaire about taxes as Republican elites are, but they still support cutting taxes by a significant margin. In a smaller field, Rubio might be the standard bearer. Instead, the standard bearer claims to want to raise taxes on the rich. And much to the dismay of just about everyone else in the Republican Party, he isn’t going anywhere.

 

By: Brian Beutler, Senior Editor, The New Republic, August 28, 2015

September 1, 2015 Posted by | Donald Trump, GOP, Tax Cuts | , , , , , , | Leave a comment

“Scott Walker Gets Schooled By His Neighbor”: Minnesota Governor Walloping Walker’s Wisconsin In Terms Of Economic Growth

Wisconsin and Minnesota share a common cultural heritage that until recently included a healthy Midwestern strain of progressive politics. Elected in 2010, Governor Scott Walker upended a hundred years of liberal populism, charting a conservative path for Wisconsin that made him a darling of the Republican Right, but left his state with a serious budget shortfall and disappointing job growth.

Meanwhile, across the border in neighboring Minnesota, Governor Mark Dayton has relentlessly pursued liberal policies, embodying the tax-and-spend Democrat that Republicans love to caricature. The result, surprising to many, is that the Minnesota economy is going gangbusters while Wisconsin’s job growth has fallen to 44th among the 50 states.

Dayton’s success steering his state’s progressive course has been a surprise. He was a middling senator at best, serving a single term from 2001 to 2007 before returning to Minnesota disillusioned with the way Washington operated. Time named him one of America’s “Five Worst Senators” in 2006, and he was known mainly for his inherited fortune as the great-grandson of the founder of Dayton’s department store, which became Target. As senator, he donated his salary to underwrite bus trips to Canada for senior citizens buying low-cost prescription drugs.

“Minnesota’s gains are not because Mark Dayton has overpowered the state with his political acumen,” says Lawrence Jacobs, a political science professor at the University of Minnesota. He describes the low-key Dayton as the “anti-politician,” someone the voters trust because he’s not smooth enough to fool them. “His skill is he has a clear agenda, and he’s unyielding. This is not pie-in-the-sky Great Society adventurism.”

Dayton has a majority Democratic legislature just as Walker has a Republican controlled legislature, bolstering the ongoing policy experiment in their states. The two governors have pursued agendas that mirror their respective party’s core beliefs, and the results so far suggest that the starve-the-government, tax-cutting credo of conservative orthodoxy has run its course.

Dayton has raised the minimum wage, and he’s significantly increased taxes on the top 2 percent of wage earners to close a budget shortfall and to raise money for investments in infrastructure and education. In the legislative session that just ended, some Democrats joined with Republicans to block his goal of expanding universal preschool. But he did get more scholarship money to educate 4-year-olds.

“This is the largest tax increase we’ve seen in Minnesota, over $2 billion,” says Jacobs. More than three-quarters of the new spending is on education, compared to Wisconsin, where education is on the chopping block, and Walker is at odds with professors and administrators alike at his state’s flagship university system.

Minnesota has also passed the state’s version of the Affordable Care Act (MNsure), and while its implementation has been rocky, it is in place and serving tens of thousands of people.

Dayton ran for governor in 2010 on an unapologetically liberal agenda, and won narrowly after a recount. He was reelected comfortably in 2014, and his approval rating in the latest Minneapolis Star Tribune poll is 54 percent. Contrast that with Walker’s 41 percent, and you’ve got a clear picture of how each is faring in the eyes of voters.

Dayton’s idiosyncratic style is in tune with the times, and at 68, he has no ambition for national office. Walker is running for president and touting hard-right policies that play well with Iowa caucusgoers. He opposed raising the minimum wage, has significantly weakened unions, reduced spending for education, cut taxes on the wealthy, and increased taxes on the middle class in part to pay for the tax cut. According to the nonpartisan Wisconsin Budget Project, Walker gave tax breaks that disproportionally favored upper-income earners while cutting $56 million in tax credits for working families.

Faced with a budget shortfall and no way to plug it without additional revenue, Republicans in the Wisconsin legislature are rebelling against additional spending cuts. But Walker shows no sign of softening his stance against raising taxes or fees. Other Republican governors, notably Louisiana’s Bobby Jindal, are in the same quandary.

“It seems like they’ve been backed into a corner and are just going forward with pure ideology and discounting any contradictory evidence,” says David Madland, author of Hollowed Out: Why the Economy Doesn’t Work without a Strong Middle Class.

As the director of the American Worker Project at the Center for American Progress, a liberal think tank, Madland in his book takes on the premise that inequality is good in the sense that helping the rich get richer is going to help everybody else, that a rising tide lifts all boats. Trickle-down economics has gotten a bad rap and is rarely invoked as a phrase anymore, but the belief that tax cuts are the engine of economic growth remains the core of GOP ideology.

That Minnesota’s economy rallied under progressive policies while Wisconsin’s has struggled is “one more data point proving that trickle down is wrong,” says Madland. While it’s tricky to attribute the well-being of a state’s economy solely to its political leadership, Minnesota is experiencing much stronger growth than its neighbor. Dayton has also proved responsive to the business community, easing early fears that his liberalism might go unchecked.

Walker, on the other hand, has doubled down to the detriment of his state on policies that are backfiring. And if voters in his home state aren’t buying what he’s selling anymore, that doesn’t bode well for his presidential campaign.

 

By: Eleanor Clift, The Daily Beast, July 19, 2015

July 12, 2015 Posted by | Economic Growth, Mark Dayton, Scott Walker | , , , , , , , | 2 Comments

%d bloggers like this: