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“Robber Baron Recessions”: Growing Monopoly Power Is A Big Problem For The U.S. Economy

When Verizon workers went on strike last week, they were mainly protesting efforts to outsource work to low-wage, non-union contractors. But they were also angry about the company’s unwillingness to invest in its own business. In particular, Verizon has shown a remarkable lack of interest in expanding its Fios high-speed Internet network, despite strong demand.

But why doesn’t Verizon want to invest? Probably because it doesn’t have to: many customers have no place else to go, so the company can treat its broadband business as a cash cow, with no need to spend money on providing better service (or, speaking from personal experience, on maintaining existing service).

And Verizon’s case isn’t unique. In recent years many economists, including people like Larry Summers and yours truly, have come to the conclusion that growing monopoly power is a big problem for the U.S. economy — and not just because it raises profits at the expense of wages. Verizon-type stories, in which lack of competition reduces the incentive to invest, may contribute to persistent economic weakness.

The argument begins with a seeming paradox about overall corporate behavior. You see, profits are at near-record highs, thanks to a substantial decline in the percentage of G.D.P. going to workers. You might think that these high profits imply high rates of return to investment. But corporations themselves clearly don’t see it that way: their investment in plant, equipment, and technology (as opposed to mergers and acquisitions) hasn’t taken off, even though they can raise money, whether by issuing bonds or by selling stocks, more cheaply than ever before.

How can this paradox be resolved? Well, suppose that those high corporate profits don’t represent returns on investment, but instead mainly reflect growing monopoly power. In that case many corporations would be in the position I just described: able to milk their businesses for cash, but with little reason to spend money on expanding capacity or improving service. The result would be what we see: an economy with high profits but low investment, even in the face of very low interest rates and high stock prices.

And such an economy wouldn’t just be one in which workers don’t share the benefits of rising productivity; it would also tend to have trouble achieving or sustaining full employment. Why? Because when investment is weak despite low interest rates, the Federal Reserve will too often find its efforts to fight recessions coming up short. So lack of competition can contribute to “secular stagnation” — that awkwardly-named but serious condition in which an economy tends to be depressed much or even most of the time, feeling prosperous only when spending is boosted by unsustainable asset or credit bubbles. If that sounds to you like the story of the U.S. economy since the 1990s, join the club.

There are, then, good reasons to believe that reduced competition and increased monopoly power are very bad for the economy. But do we have direct evidence that such a decline in competition has actually happened? Yes, say a number of recent studies, including one just released by the White House. For example, in many industries the combined market share of the top four firms, a traditional measure used in many antitrust studies, has gone up over time.

The obvious next question is why competition has declined. The answer can be summed up in two words: Ronald Reagan.

For Reagan didn’t just cut taxes and deregulate banks; his administration also turned sharply away from the longstanding U.S. tradition of reining in companies that become too dominant in their industries. A new doctrine, emphasizing the supposed efficiency gains from corporate consolidation, led to what those who have studied the issue often describe as the virtual end of antitrust enforcement.

True, there was a limited revival of anti-monopoly efforts during the Clinton years, but these went away again under George W. Bush. The result was an economy with far too much concentration of economic power. And the Obama administration — preoccupied with the aftermath of financial crisis and the struggle with bitterly hostile Republicans — has only recently been in a position to grapple with competition policy.

Still, better late than never. On Friday the White House issued an executive order directing federal agencies to use whatever authority they have to “promote competition.” What this means in practice isn’t clear, at least to me. But it may mark a turning point in governing philosophy, which could have large consequences if Democrats hold the presidency.

For we aren’t just living in a second Gilded Age, we’re also living in a second robber baron era. And only one party seems bothered by either of those observations.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, April 18, 2016

April 19, 2016 Posted by | Economy, Monopolies, Verizon | , , , , , , , | Leave a comment

“The Way We Never Were”: Decades On, Advocates Of ‘Family Values’ Still Miss The Point

A quarter-century ago, amid a political environment obsessed with the decline of “family values,” a book was published that methodically blew holes in the myth-making at the heart of this outlook.

The title summed it up: “The Way We Never Were: American Families and the Nostalgia Trap.” Stephanie Coontz’s 1992 book was a work of first-rate history, and it undermined a slew of common misperceptions of family life in America, but it was also a plea to take off the rose-colored glasses that cause us to get so many political issues wrong.

Fittingly, Coontz’s publisher, Basic Books, has released a revised edition just as the moralizing we’ve come to expect from presidential campaigns kicks into overdrive.

You’ll recognize the common conceits: that families must have two parents at all cost; that some people thrive while others fail based on their self-reliance; that private enterprise is the sole engine of economic growth.

Coontz, a professor at Evergreen State College in Washington, is research director at the Council on Contemporary Families, which highlights her work and that of similar scholars. It’s always enlightening.

Here’s the problem she consistently highlights, one that is endemic to politics: Twist the past and base current public policy on these misperceptions, and you will end up with a destructive effort that exacerbates the problems of inequality.

You can’t make America great “again,” a la Donald Trump, if you are clueless to what work life really looked like for most of the 20th century.

You can’t restore traditional family values, a la Ted Cruz, if you start with an interpretation of family that never existed in America.

And you certainly won’t resonate as a ceiling crasher for women, a la Hillary Clinton, if you continue to encourage policies and business structures that promote inequality between men and women and high- and low-wage workers.

Yet it is from this stewpot of historical illiteracy that many politicians ladle out their rhetoric, and voters gobble it up.

When the book was first published in the 1990s, experts of the day were wringing their hands over a range of issues: increasing rates of out-of-wedlock childbirth, numbers of single mothers, women in the workforce and welfare dependency. So many of the studies seemed to focus on women and the imagined threats from their changing roles in society — especially the threats they posed to children.

Yet what Coontz discovered back then would still be news to many: “I found that the male breadwinner family of the 1950s was a very recent, short-lived invention and that during its heyday, rates of poverty, child abuse, marital unhappiness and domestic violence were actually higher than in the more diverse 1990s.”

Here’s another tidbit: Almost a quarter of 1950s brides were pregnant on their wedding day. Keep that in mind the next time you hear a politician alluding mistily to the chaste and virtuous past.

So often we hear that unwed motherhood is a primary cause of poverty and economic insecurity. But Coontz cites current studies showing that income inequality is four times more important than family structure in explaining the growth in poverty.

Getting the story on poverty right is hugely important. It would force any honest politician to focus on things more likely to affect families: quality educational opportunities, access to childcare and family leave policies.

And those advantages are where America, in comparison to other industrialized countries, has really fallen down in recent decades.

Finally, there is what Coontz terms the myth of self-reliance. This one trips up Republicans and Democrats alike. It starts with a revisionist understanding of the role government has long played in aiding businesses, mortgage holders, farmers and college students, as well as the poor in various benefit and tax-credit programs.

Yet only some people are singled out as “takers”: minorities, single mothers and the like. The point is to make slashing their benefits seem like an act of fairness. After all, it is reasoned, it’s important to make people self-sufficient as well to balance state budgets.

“Legislators remain wedded to the historically disproven notion that subsidies to banks and corporations create jobs while subsidies to families create only laziness,” Coontz writes. The data say otherwise.

Remember that the next time a politician starts talking about his family’s humble beginnings and claims “we always stood on our own two feet.”

Media, it must be said, often echo these false narratives — perhaps because it’s so easy. What Coontz’s invaluable research shows us, though, is that to help families we must first understand them. Many of our politicians aren’t really trying.

 

By: Mary Sanchez, Opinion-page Columnist for The Kansas City Star; The National Memo, April 8, 2016

April 9, 2016 Posted by | Economic Inequality, Family Values, Politicians | , , , , , , , , , | 2 Comments

“Trade, Labor, And Politics”: Whatever They May Say, Politicians Who Espouse Rigid Free-Market Ideology Are Not On Your Side

There are a lot of things about the 2016 election that nobody saw coming, and one of them is that international trade policy is likely to be a major issue in the presidential campaign. What’s more, the positions of the parties will be the reverse of what you might have expected: Republicans, who claim to stand for free markets, are likely to nominate a crude protectionist, leaving Democrats, with their skepticism about untrammeled markets, as the de facto defenders of relatively open trade.

But this isn’t as peculiar a development as it seems. Rhetorical claims aside, Republicans have long tended in practice to be more protectionist than Democrats. And there’s a reason for that difference. It’s true that globalization puts downward pressure on the wages of many workers — but progressives can offer a variety of responses to that pressure, whereas on the right, protectionism is all they’ve got.

When I say that Republicans have been more protectionist than Democrats, I’m not talking about the distant past, about the high-tariff policies of the Gilded Age; I’m talking about modern Republican presidents, like Ronald Reagan and George W. Bush. Reagan, after all, imposed an import quota on automobiles that ended up costing consumers billions of dollars. And Mr. Bush imposed tariffs on steel that were in clear violation of international agreements, only to back down after the European Union threatened to impose retaliatory sanctions.

Actually, the latter episode should be an object lesson for anyone talking tough about trade. The Bush administration suffered from a bad case of superpower delusion, a belief that America could dictate events throughout the world. The falseness of that belief was most spectacularly demonstrated by the debacle in Iraq. But the reckoning came even sooner on trade, an area where other players, Europe in particular, have just as much power as we do.

Nor is the threat of retaliation the only factor that should deter any hard protectionist turn. There’s also the collateral damage such a turn would inflict on poor countries. It’s probably bad politics to talk right now about what a trade war would do to, say, Bangladesh. But any responsible future president would have to think hard about such matters.

Then again, we might be talking about President Trump.

But back to the broader issue of how to help workers pressured by the global economy.

Serious economic analysis has never supported the Panglossian view of trade as win-win for everyone that is popular in elite circles: growing trade can indeed hurt many people, and for the past few decades globalization has probably been, on net, a depressing force for the majority of U.S. workers.

But protectionism isn’t the only way to fight that downward pressure. In fact, many of the bad things we associate with globalization in America were political choices, not necessary consequences — and they didn’t happen in other advanced countries, even though those countries faced the same global forces we did.

Consider, for example, the case of Denmark, which Bernie Sanders famously held up as a role model. As a member of the European Union, Denmark is subject to the same global trade agreements as we are — and while it doesn’t have a free-trade agreement with Mexico, there are plenty of low-wage workers in eastern and southern Europe. Yet Denmark has much lower inequality than we do. Why?

Part of the answer is that workers in Denmark, two-thirds of whom are unionized, still have a lot of bargaining power. If U.S. corporations were able to use the threat of imports to smash unions, it was only because our political environment supported union-busting. Even Canada, right next door, has seen nothing like the union collapse that took place here.

And the rest of the answer is that Denmark (and, to a lesser extent, Canada) has a much stronger social safety net than we do. In America, we’re constantly told that global competition means that we can’t even afford even the safety net we have; strange to say, other rich countries don’t seem to have that problem.

What all this means, as I said, is that the Democratic nominee won’t have to engage in saber-rattling over trade. She (yes, it’s still overwhelmingly likely to be Hillary Clinton) will, rightly, express skepticism about future trade deals, but she will be able to address the problems of working families without engaging in irresponsible trash talk about the world trade system. The Republican nominee won’t.

And there’s a lesson here that goes beyond this election. If you’re generally a supporter of open world markets — which you should be, mainly because market access is so important to poor countries — you need to know that whatever they may say, politicians who espouse rigid free-market ideology are not on your side.

 

By: Paul Krugman, Op-Ed Columnist,  The New York Times, March 28, 2016

March 28, 2016 Posted by | Bernie Sanders, Hillary Clinton, International Trade Agreements, Protectionism | , , , , , , , , | 1 Comment

“Donald Trump Is Dead Wrong”: America Is A Fabulously Rich And Great Nation

America isn’t broke. Nor is it on the verge of a government debt crisis (whatever “crisis” even means for a nation whose debt is printed in a currency that is both its own and the world’s reserve). America is not in decay, and the last thing the U.S. should do is rashly withdraw from a dangerous world because of those mistaken beliefs.

This should be especially clear after the Belgium terror attacks.

Yet retreat is just what Donald Trump seems to be proposing. In an interview with The Washington Post editorial board Monday, Trump questioned the U.S. role in NATO and presence in Asia due to the financial burden they require:

I mean, we pay billions — hundreds of billions of dollars to supporting other countries that are in theory wealthier than we are. … When you look at the kind of money that our country is losing, we can’t afford to do this. Certainly we can’t afford to do it anymore…. I think we were a very powerful, very wealthy country. And we’re a poor country now. [Trump]

Looks like we finally found something Trump is in favor of off-shoring: America’s security.

Now, it’s certainly legitimate to evaluate the mission and cost of America’s overseas military commitments and posture. But that’s a different thing than scrapping our military alliances — or threatening to do so as some ham-handed budget negotiating tactic. Leading the free world, reassuring allies, and deterring aggression have little overlap with the skills needed to drive a hard bargain with a potential tenant in Trump Tower.

And yet, Republicans might give Trump’s defense policy ideas more of a hearing than they deserve because of their persistent debt fears. After all, it’s mainstream GOP economic thought that U.S. finances are precarious. How could they not be given the $19 trillion federal debt — $22 trillion if you include state and local government? These are figures Trump always mentions, as do many Republican politicians. They provide handy justification for arguing we can’t afford to invest in science, repair and upgrade our infrastructure, or bolster wages for low-income workers.

But here’s the thing: The U.S. is far from a poor nation. American households entered 2016 with a net worth of nearly $87 trillion, according to the Federal Reserve. To put that ginormous number in some context, China’s private wealth has been estimated at $23 trillion. Even if you factor in America’s debt-laden public sector and China’s large state-owned companies, the U.S. still has a $45 trillion wealth edge.

There are other ways of looking at national wealth that also show America’s riches. The value of U.S. intellectual capital has been estimated at around $9 trillion, with the value of the intangible assets — such as patents, copyrights, and general business methods — at nearly $15 trillion. And given Trump’s appreciation of brands — he generously values his own at $3 billion — you would think the businessman would appreciate America’s, which has been valued at close to $20 trillion.

Maybe all this wealth is one reason global financial markets don’t seem so worried about the U.S. debt. Well, that and the U.S. tax burden being one of the lowest in the developed world. The dollar is strong, and interest rates are low, as are inflation expectations. None of this is to say the U.S. should be a spendthrift in either defense or social spending. Without entitlement reform, Medicare and Social Security will require massive tax increases to keep their promises. Yet Trump would leave them untouched, vowing implausibly to fix their fiscal problems through higher economic growth alone.

The U.S. isn’t bankrupt. Our pockets aren’t empty. We aren’t a pauper nation.

But, of course, you can’t promise to make America great again without arguing that it currently isn’t.

 

By: James Pethokoukis, The Week, March 23, 2016

March 27, 2016 Posted by | Donald Trump, Economic Policy, Foreign Policy, National Security | , , , , , , , , , | 1 Comment

“Nobody Wins A Trade War”: Donald Trump And Bernie Sanders Are Promoting Dangerous Protectionism

As different as Donald Trump and independent Vermont Sen. Bernie Sanders are, they have one important policy goal in common. It’s a dangerous goal, one that elites in both parties must counter, before a new public consensus is formed and grave damage is done to the economy.

Both Trump and Sanders are, at their heart, protectionists. They both believe in tariffs and other obstacles to prevent foreign-made goods from competing with American-made goods, and keep foreign worker salaries from driving down Americans’ pay. Trump is the most direct and vocal about it, calling for tariffs as high as 45 percent against China. Sanders has yet to call for a specific tariff, but he’s called for repealing the North American Free Trade Agreement with Canada and Mexico. Eliminating NAFTA would restore tariffs that ranged up to 25 percent and lead to other measures that hinder trade between countries.

At first glance, it seems like a great idea to raise tariffs to protect American workers from globalization. But nearly all economists say that protectionism is a beast that will gore us if set loose. Protectionist measures by the U.S. will lead to reprisals by other countries and the tit-for-tat escalation of tariffs in a trade war will likely lead to a global depression (as it did in the 1930s). And even when protectionism is successful in boosting wages, it boosts consumer prices even faster, so most workers are no better off.

All this is generally accepted by leaders and advisers in both the Democratic and Republican parties. But the downside of protectionism is complicated and not well understood by the public, whereas the call for tariffs and border-closings (Trump’s Mexican wall) is simple and emotionally resonant. Hence the problem: In political communications, it’s well known that if a falsehood is not promptly and effectively countered by respected senior public figures, it tends to become accepted as true by the public at large, regardless of the damage it may cause.

This time, the public will not accept that so-called free trade alone will restore rising standards of living and breathe new life into the American dream. Most working Americans, all except those at the top, have seen their standard of living erode over the past 30 years, and “trust me” is no longer an adequate response. That’s why insider candidates – former Secretary of State Hillary Clinton, former Florida Gov. Jeb Bush and others associated with the failed status quo – are doing poorly, and outsider candidates are drawing far more support than expected.

To prevent a protectionist insurgency from wrecking the economy, the candidates who represent mainstream economic thinking need to do better. They need to offer more than a reminder of the Smoot-Hawley Tariff Act of 1930. Unfortunately neither party is well positioned to do this. Clinton has the albatross of NAFTA hung firmly around her neck, since her husband championed it while president. And until very recently, she’s been a strong supporter of the latest proposed trade treaty, the Trans-Pacific Partnership – which is pushed by President Barack Obama and supported by a wide range of Democrat-aligned pundits.

At the same time, those in the Republican mainstream have either ignored stagnant wages, or they’ve blamed them on excessive taxes and red tape. That has convinced enough voters to date. But Americans have been tugging on their boot straps for several decades now without effect, and they are not inclined to believe that if they only tug a little longer or a little harder they will be themselves lifted up. Just as Clinton is not well positioned to be credible on this issue, neither is former Massachusetts Gov. Mitt Romney, who has made much of his fortune by eliminating American jobs. The public senses this. That’s part of the reason Romney’s broadside against Trump had so little effect.

If Democrat and Republican elites intend to stave off a wave of protectionism, it’s time for some serious public discussion of alternatives that can meaningfully help ordinary working Americans and their families. The possibilities fall into three categories: The first involves investments that boost American productivity directly, like education and infrastructure. The second category requires steps that boost American incomes directly like radically expanding the earned income tax credit or strengthening unions. The third category involves measures that reduce what workers have to pay out-of-pocket in order to live, so that stagnant wages go further. These measures include tax-shifting (reducing the employee share of the payroll tax, for example), making higher education free (as it is in of the developed countries we compete against) and government-matching of employee contributions to retirement plans, so employees don’t need to save as much of their income.

Most of these ideas are anathema to conservatives, and many are considered outside the range of legitimate ideas that serious Democratic thought leaders can safely discuss in public. But a trade war and the jingoism that goes with it might be even more distasteful and is almost certainly more damaging. It’s time for elites of both parties to begin discussing the undiscussable, if for no other reason than to avoid worse.

 

By: David Brodwin, Cofounder and Board Member of American Sustainable Business Council; U. S. News and World Report, March 14, 2016

March 15, 2016 Posted by | Bernie Sanders, Donald Trump, Protectionism, Trade Agreements | , , , , , , , , | Leave a comment

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