All of today I've been trying to wrap my head around why a national infrastructure bank would be a good idea.
After hours of googling, reading, and talking to myself - it just seems like it has a lot of potential to be good for the people but the proposals that are out there are not headed in that direction.
The whole point of a NIB is to increase infrastructure investment. Though there are many proposals they all have this sort of structure:
A NIB is originally capitalized by federal fund appropriation - the government says its okay to start a bank and gives it $x amount of dollars- lets say $60 billion- to start with.
They can use that initial starting money to "leverage private investment" which I think means use some sort of mechanism to make the $60 billion into $120 billion (maybe through a bond offering or something). But they don't have to do this, they can just stay unleveraged and stick with the $60 billion.
They take applications for infrastructure projects that state/local governments or private firms would like to do and pick the best ones and give them low-interest loans. The projects usually have to have some sort of monetary benefit so the loans can be repaid- like taxes or tolls.
Upon repayment, the NIB can make more loans.
The increased infrastructure investment comes from the fact that these borrowers probably wouldn't have made these investments without the low-cost loans.
This seems to make sense. However I have questions:
First- is it actually the case that state/local governments and private firms are credit constrained? Maybe they actually have access to loans that aren't high interest but they just don't want to make those investments.
Second- how is this sustainable? Banks offer low-interest loans to finance these projects and owe interest to bondholders - is the spread really that big?
Third- the only thing that the NIB seems to be incentivizing is projects that have future revenue streams like tolls and taxes. This is what makes them want to offer the loan in the first place. However, does this mean the only infrastructure that is being increased is infrastructure that will further tax people. Aren't the federal funds used for initial capitalization our tax money already? We are being taxed to fund further taxation.
Fourth- the projects that have the most social benefits are exactly the ones that can't be charged per user. It is easy to imagine Amtrak wanting a low-cost loan from NIB to expand their services but why the hell would anyone want to take out a loan to improve a public good?
To be fair I did read something about California's I-bank doing some good stuff - like making sure communities benefit from these infrastructure projects and that any wages paid via their loans are good wages. This type of leveraging I'm down with.
The NIB will probably increase infrastructure spending but also
enrich bondholders
not be sustainable
tax on tax on tax
give companies low cost loans to charge more fees
Wouldn't it be easier to just tell the government own up to the responsibility for our infrastructure?
Friday, July 3, 2015
Walk the Walk
That moment when most academic economists admit there is no such thing as a free market system and the market depends on government intervention to facilitate its functioning and then you read article after article saying that stock prices incorporate all available information and are the best guess about future performance...walk the walk guys. You can't pose as a respectable, sane person on the one hand and on the other say financial markets are perfect. #behavioraleconomics #emoinvestors #emoswooptrades #pumpanddumprevolution
Friday, April 24, 2015
Banks and business
Why would firms like McDonalds lobby against things like Dodd-Frank and financial firms not reciprocate by lobbying for things that would benefit firms like McDonalds?
Jim Crotty suggests that if there is some "solidarity" (my word, not his) between firms and banks, it would be easier to make the environment better for both.
In my view, banks are the ones taking in the profits these days with low regulation, leverage, and excess reserves. They fund democrats and republicans and have been shown love from both sides. Banks run the show and there isn't any reason for them to waste resources lobbying for things that do not directly benefit them.
Then why would firms like McDonalds lobby against things like Dodd-Frank without reciprocation? I'm not sure, perhaps Jim is right and they are trying to secure the most unregulated world for all business. Or perhaps banks have some power over firms. Perhaps via access to repo markets or their access to funds.
Stiglitz's Credit Rationing Model: Some Thoughts
Although I think the point of the Stiglitz model is to explain the movement and dynamics of interest rates and the effect of monetary policy, it offers some insights into how bank's behavior can deviate from the "normal way" banks behave.
"Equity markets are imperfect so that firms cannot fully divest themselves from the risks they face so they borrow. There is a probability that they may not be able to meet their debt obligation- that they may go bankrupt. Because the costs of bankruptcy are high, firms will act in a risk-averse manner. How risk adversely they behave depends on their net worth"
How does this fit into what was actually happening during and after the most recent financial crisis?
Investment bank's net worth was strong on the books, but they must have known that they were actually buying crap and selling crap since they bet against it. Perhaps the model shouldn't depend on "net worth" but perceived net worth, or the net worth of all other banks, or the net worth that everyone agrees upon. Sort of like Keynes' beauty contest.
The heart of the credit rationing model, in my view, is that banks will loan when it is profitable to loan. This makes some sense. Even at higher interest rates, banks may not make loans because their expected profit is not maximized because of adverse selection - the people most willing to pay a high interest rate are the ones most likely to default. However, juxtaposing this with the fact banks were pushing out subprime loans to anyone who could sign a paper doesn't agree with this type of risk argument. The difference was that there was "no skin in the game" for all parties. Originators, packagers, sellers, raters, and buyers (thought they were great investments).
"Equity markets are imperfect so that firms cannot fully divest themselves from the risks they face so they borrow. There is a probability that they may not be able to meet their debt obligation- that they may go bankrupt. Because the costs of bankruptcy are high, firms will act in a risk-averse manner. How risk adversely they behave depends on their net worth"
How does this fit into what was actually happening during and after the most recent financial crisis?
Investment bank's net worth was strong on the books, but they must have known that they were actually buying crap and selling crap since they bet against it. Perhaps the model shouldn't depend on "net worth" but perceived net worth, or the net worth of all other banks, or the net worth that everyone agrees upon. Sort of like Keynes' beauty contest.
The heart of the credit rationing model, in my view, is that banks will loan when it is profitable to loan. This makes some sense. Even at higher interest rates, banks may not make loans because their expected profit is not maximized because of adverse selection - the people most willing to pay a high interest rate are the ones most likely to default. However, juxtaposing this with the fact banks were pushing out subprime loans to anyone who could sign a paper doesn't agree with this type of risk argument. The difference was that there was "no skin in the game" for all parties. Originators, packagers, sellers, raters, and buyers (thought they were great investments).
Monday, January 12, 2015
Black Wealth: Game Theory's Contributions
For a long time I've wanted to investigate the extent of US slavery's implications on black wealth. Seeing that Azealia Banks recently called for reparations, it seems a good a time as any to start.
Black PEOPLE were white people's wealth.
This makes me think of Marx's primitive accumulation, where he outlines how and through what means capitalists originated their initial wealth. Instead of stolen land, wealth was enslaved by coercion and force.
Furthermore, the value of slaves accounted for an estimated 100% of productive output,
"In 1860, slaves as an asset were worth more than all of America’s manufacturing, all of the railroads, all of the productive capacity of the United States put together,” the Yale historian David W. Blight has noted. “Slaves were the single largest, by far, financial asset of property in the entire American economy.” The sale of these slaves—“in whose bodies that money congealed,” writes Walter Johnson, a Harvard historian— generated even more ancillary wealth." (Coates, 2013).
Black people are systematically denied wealth.
It is well documented during Jim Crow there were systemic laws and rules that prevented black wealth from accumulating, see here and here.
Black wealth was often stolen or destroyed.
In the New Jim Crow, Michelle Alexander argues this same systemic form of social control still exists today in the form of mass incarceration. "Criminals" are LEGALLY discriminated against and barred from wealth building (home ownership loans) among other things such as voting, employment, and serving on juries.
Black Wealth vs. White Wealth Today
Implications of a lack of wealth
Black PEOPLE were white people's wealth.
This makes me think of Marx's primitive accumulation, where he outlines how and through what means capitalists originated their initial wealth. Instead of stolen land, wealth was enslaved by coercion and force.
Furthermore, the value of slaves accounted for an estimated 100% of productive output,
"In 1860, slaves as an asset were worth more than all of America’s manufacturing, all of the railroads, all of the productive capacity of the United States put together,” the Yale historian David W. Blight has noted. “Slaves were the single largest, by far, financial asset of property in the entire American economy.” The sale of these slaves—“in whose bodies that money congealed,” writes Walter Johnson, a Harvard historian— generated even more ancillary wealth." (Coates, 2013).
Black people are systematically denied wealth.
It is well documented during Jim Crow there were systemic laws and rules that prevented black wealth from accumulating, see here and here.
Black wealth was often stolen or destroyed.
In the New Jim Crow, Michelle Alexander argues this same systemic form of social control still exists today in the form of mass incarceration. "Criminals" are LEGALLY discriminated against and barred from wealth building (home ownership loans) among other things such as voting, employment, and serving on juries.
Black Wealth vs. White Wealth Today
Implications of a lack of wealth
Black people were people's wealth then
were (and still are) systematically denied wealth, and currently the wealth gap
is at a staggering 13x. But so what? What does lacking wealth even
translate into? Luckily we have a team of mostly white men to shed some light
on the issue: Jared Bernstein and Ben Spielburg have aggregated studies dealing
with this issue in their set of inequality
slides while Sam Bowles has utilized the tools of game theory to analyze wealth
effects on social efficiency.
Lack of wealth constrains economic
mobility, contractual
opportunities, overall economic efficiency and democracy
Economic Mobility
Even if the way black wealth has been
treated throughout history doesn’t bother you, wealth inequality should be
alarming because it kills the soul of America- the American Dream. The idea
that anyone can “make it” is not represented in the data. Bradbury and Triest find the more unequal a locality, the more
likely it has lower levels of economic mobility. A Pew Research study on economic
mobility finds that there is "stickiness" at the ends of the mobility
latter, indicating 66% of those at the bottom, will stay at the near the bottom.
The study also finds upward mobility in terms of wealth is more likely among
whites than blacks. Furthermore, the study finds that “people who grow
up in an affluent household and don’t graduate college are 2.5 times more
likely to earn a top 20 percent income than people who grow up in a low-income
household and do graduate" (Bernstein and Spielburg, 2014).
Opportunities
Embedded in the rags to riches story
is that America is that this is the land of “opportunity”. No matter how wealth
is distributed, all face the same opportunities. Sam Bowles argues this claim is rooted in the Walrasian
paradigm and it is not an accurate representation of how the world works.
The Walrasian paradigm is a world
based on certain assumptions that simplify complex problems and to try and gain
some insights into them. One of
these assumptions is that exchanges are completely
contractible, meaning if a lender were to lend to a borrower, there would
be a way for the lender to enforce the contract and surely be paid back.
However, the real world does not work
this way. Even though many times
lenders do find ways to somehow through coercion or other methods get their
money back, there is not yet an enforceable way to get repayment. The lender-borrower
relationship is an incomplete contract.
This seemingly small change in
assumption yields major changes in insights.
*For an in depth presentation of the
mathematical model as another way to draw the following conclusions see Bowles, Microeconomics, chapter
9.
Incomplete contracts are
ubiquitous. They are characterized
by the fact that not all aspects of an exchange can be specified. For example,
how much effort a worker should exert or how careful an insured person should
be. If an individual can invest their own wealth in a project it rectifies two
issues of incomplete contracts: adverse selection and moral hazard. Adverse selection is the problem of not
knowing the quality of a project that is bought or invested in. In the lender-borrower problem, the
lender doesn’t know the quality of the project the borrower will engage in. The moral hazard problem concerns the action
the borrower (agent) takes. If the
borrower already has the money, they might take risks that would be harmful to
the lender (principle).
An investor with enough wealth to fund
a project on their own is the residual claimant of that project. The investor has the incentive to have
a quality project and to act in ways that would benefit the project.
When investors lack wealth and have
to borrow to invest, the adverse selection and moral hazard problems return.
Sometimes borrower’s wealth is so low that the incomplete contract problems are
too risky to overcome; meaning the amount of wealth the borrower can invest in
the project is not enough to convince the lender that the project is of good
quality and/or that the borrow will not engage in risky behavior so the lender
would rather invest money in alternatives. In other words, the opportunity cost
for the lender would be too large. The people who cannot borrow are credit
market excluded.
For similar reasons, the wealthier
can borrow larger amounts, have lower quality projects, or a lower interest
rate. The wealthier can borrow more (same quality and interest rate) because
their extra wealth convinces the lender their interests align and the borrower
will not have a bad project or act in harmful ways. If a person with some wealth and a person with more wealth
borrow the same amount at the same interest rate, the quality of the wealthier
can be of lower quality. The
reasoning for this is the same as why the wealthier can borrow a higher amount,
their wealth helps clear up the incomplete nature of a lender-borrower
relationship.
Clearly in the world of incomplete
contracts, unequal wealth distributions do not offer the same opportunities for
everyone. People with less wealth cannot borrow as much as they’d like or are
charged a higher interest rate.
Some low-wealth borrowers are barred borrowing at all.
Social Efficiency
The equal opportunity sentiment
reflects a belief commonly found in economics, namely who owns the
wealth is not important. The Second Fundamental Theorem and the Coase Theorem
state whatever the distribution of the initial wealth, (with complete contracts
or incomplete respectively) a Pareto optimum will occur (Pareto optimum
allocation meaning no one can be made better off without making someone worse
off). In other words, the distribution of wealth in society doesn’t matter for efficiency
in the society.
But Bowles argues wealth does matter
for allocative efficiency by determining the set of opportunities facing a
citizen, “Thus wealth differences have qualitative effects, excluding some and
empowering others…Wealth difference may persist across generations due to the
more limited opportunities to borrow and less lucrative investment opportunities
of those who do not inherit wealth from their parents” (Bowles, 2006).
A lack of wealth impeding economic
mobility and social efficiency is not anything new. It can be seen in the crop
liens of the post bellum South.
Most farmers did not have enough wealth to post collateral for loans, so
instead of collateral, lenders staked a claim on the planted crops. Since cotton was a more secure crop to
sell, relative to corn, farmers were forced to produce cotton, leaving individuals
and the community worse off.
Renting is a more current phenomenon
with the same results. A home
owner is a residual claimant, meaning they own the house so they have a stake
in what happens to it, so they take care of it. If everyone in the neighborhood was a homeowner, the
individual and the community would be better off, however, as of 1995 about a
third of the population rented (Bowles, 2006).
As from the lender-borrower
relationship characterized above, borrowers with little or no wealth may have
better equality projects than wealthy borrowers, but will not be lent to. Social efficiency suffers from some low
wealth borrowers being shut out of the credit market all together. A number of
studies have shown people who received inheritances are more likely to be self
employed or start their own business (Bowles, 2006).
Wealth determines contract options,
contract options determine power level, those with more wealth exercise power.
It is only a small step to see how wealth not only constrains mobility,
opportunity, social efficiency but also democracy itself.
Lack of wealth undermines democracy
Gilens and Page
found that the US represents an oligarchy more so than democracy. In one
of the researcher's own words, "ordinary citizens have virtually no
influence over what their government does in the United States. And
economic elites and interest groups, especially those representing business,
have a substantial degree of influence." (Kapur, 2014).
The historical and current denial of
black wealth in itself is unjust.
Furthermore, it destroys everything America is supposed to be a symbol
of: economic mobility, opportunity, democracy and freedom.
________________________________________________________________________________
Bernstein, J. & Spielburg, B. (2014). Increasing Inequality: It's happening, it matters, and there's something we can do about it. Center on Budget and Policy Priorities.
Bowles, S. (2006). Microeconomics: Behavior, Institutions, and Evolution. Princeton University Press.
Bowles, S. (2006). Microeconomics: Behavior, Institutions, and Evolution. Princeton University Press.
Coates, T. (2014). The Case for Reparations. The Atlantic.
Kapur, S. (2014). Scholar Behind Viral Oligarcy Study Tells You What it Means. TPM
Kapur, S. (2014). Scholar Behind Viral Oligarcy Study Tells You What it Means. TPM
Wednesday, January 7, 2015
Dependence on Businesses for Survival
Marx, Marglin - the stages of capitalism, the separation of workers from the production process, productive knowledge, and productive means.
The extent of wage work
In the US, about 93% of employed persons are wage or salary workers (which includes incorporated self-employed persons)
| HOUSEHOLD DATA ANNUAL AVERAGES 12. Employed persons by sex, occupation, class of worker, full- or part-time status, and race [In thousands] |
2012 | 2013 |
| Total Employed Persons | 142,469 | 143,929 |
| Wage and Salary Workers | 132829 | 134421 |
| Percentage of Wage and Salary Workers | 93.23% | 93.39% |
| Source: BLS http://www.bls.gov/cps/cpsaat12.htm |
If we take incorporated self-employed people into account, the self-employment rate goes up to about 10%.
Source: BLS
http://www.bls.gov/webapps/legacy/cpsatab9.htm
Looking at similar countries, the world bank has estimated wage and salary workers make up high 80% to low 90% of employed persons for developed countries (World Bank, http://data.worldbank.org/indicator/SL.EMP.WORK.ZS)
In developing countries, land used to sustain subsistance farming and families that depend on it, is not valued and therefore being sold for companies to build (Waring).
Interestingly, a BLS report indicates self-employed people are likely to be either White or Asian men (Hipple, 2010).
Firm Power
Realizing survival is based off of the ability to get and hold a job makes me feel like a crazy person. It isn't the survival of the fittest anymore, it is survival of who can conform and take orders the best.
Firms have an incredible amount of power. They get to decide how many jobs to offer and how much to pay each employee. The only check on them, in terms of wages and number of jobs to offer, is the minimum wage. The theory is that firms have knowledge the government couldn't possibly have and are supposed to be the optimizers of these choices. Of course, many believe the firm really isn't making these choices - it is the market forcing them to certain choices, whether through supply and demand or competition.
I think firms, especially small ones, do work with constraints and are limited in what types of wages they can offer. I think firms want their firm to continue and try to make decisions that will sustain their company. However, I think beyond those constraints, there is menu of options most firms have (more or less jobs, better or worse wages) and use them as leverage to advocate for policies that benefit them.
With firms always holding jobs over everyone's head and a job being the only option for survival, how is any progress supposed to be made?
Alternatives
It seems ideal reforms like the great era of the 50's marginal tax rates of 90%, a maximum wage tied to a ratio of the minimum wage, increases in capital gains and estate taxes, enacting the Volcker rule, etc. don't rid capitalism of the disease of inequality of power, but effectively deal with the symptoms. But once the power starts accumulating, the accumulators leverage it to make sure they don't lose it and can accumulate more.
Alternatives that change the structure of capitalism into something different seem to me, the best sustainable alternative.
Strengthening worker's power by nullifying the job/survival threat would mean finding jobs elsewhere.
Alternative forms of ownership is one way- I frequently allude to Gar Alperovitz's America Beyond Capitalism.
I read something recently about a "employer" of last resort, by Randy Wray. He was speaking of the government, but I think the government has proven to be tainted by this imbalance of power and not the best potential candidate of employer of last resort. Perhaps community employer of last resort. Pooling funds to do community work, getting away from corporate chains, developing jobs that have a stake in the community.
Hipple, S. (2010). Self Employment in the United States. Bureau of Labor Statistics.
http://www.bls.gov/opub/mlr/2010/09/art2full.pdf
Draft of Book Review American Beyond Capitalism
America Beyond Capitalism – 10 year review
“open their eyes in a country where they must be employees or nothing…”
“if income, wealth, and economic position are also political resources,
and if they are distributed unequally, then how can citizens be political
equals?” (50)
Summary:
In America Beyond Capitalism, Gar Alperovitz highlights
shortcomings of our current economic system and outlines an alternative model for
the US economy. He provides
extensive research on existing alternative institutions that already have
demonstrated success as well as government reforms that could redistribute
wealth. Throughout the book, Alperovitz
develops the “Pluralist Commonwealth Model” which is based on equality,
freedom, and democracy. Although the
three concepts are interconnected, he argues liberty and democracy rest on
equality. The key to greater equality lies in the distribution of wealth. Low and middle-income people need
access to wealth; owning assets such as stocks and bonds will (hopefully)
produce continued income payments for the future. How can people accumulate
wealth? Alperovitz explores a variety of ways people can accumulate wealth:
worker owned firms (ESOPs), worker cooperatives, community development
corporations (CDCs), municipal ownership, individual development accounts (IDAs),
among others. Once wealth is
accumulated, through these types
of organizations or through government redistributed reform, people’s income
will be more secure and they will possess more freedom to do what they will
with their time and money – leading to better democracy and meaningful liberty.
Commentary:
Alperovitz documents citizens’ discontent with the
government’s ability to take care of their needs and their dissatisfaction with
corporation’s influence with politics. Ten years after his claims, Pew Research polls indicate
citizen’s trust of the government is currently at historical low of 19%[1]
and that nearly 80% of those who have heard of the Citizens’ United ruling
believe it has had negative effects[2].
He notes that even though the people are unhappy with current arrangements,
they cannot imagine another economic system than the one that currently exists
(3).
As an economic historian, Alperovitz observes it is very
unlikely US history will end with the current economic arrangements (4). By placing the current economic regime
within historical context, it is easy for him to imagine a new regime emerging
– as has happened multiple times throughout history. In fact, he goes further than imagining a different economy
by identifying and commenting on existing institutions that may well be
transforming our economic system at this very moment.
Alperovitz’s presentation of alternative wealth building institutions
may be more optimistic than warranted – although he does qualify most of his
data. For example, he cites there
are over 11,000 ESOPs in existence, but not all of the ESOPs are 100% or even
majority owned. Furthermore, a more robust picture of these institutions would
not only include the most successful and the success rates, but also the
initial sample sizes. For
instance, he states there are over 4,000 CDCs in existence, but how many CDCs
were started and then failed. These
additional data may prove to be less encouraging, but they would allow space
for investigation and progress towards sustainable alternatives.
Some of Alperovitz’s ideas suggest various institutions
invest individual’s or public money in stocks and bonds via mutual funds, etc. Expanding the financial sector even
with the intention of increasing wealth for low-income earners demands
hesitation and thought. The growth of the financial sector and its dangerous
implications has been well-documented by Epstein[3]
and others.
On the other hand, the idea of local finance is
attractive. Cities and
municipalities could control their investments- making sure any company requesting
a loan has a social benefit, will hire local people, say in the community, and
not exploit the workers. Business
profits will benefit the community members and the community, now a residual
claimant, has a vested interest in monitoring company’s behavior and actions (24).
In addition to developing and promoting new institutions to
create wealth, Alperovitz proposes inequality reduction via redistribution by
government reform. His proposals
to tax the 1% on net worth or estate (180) were echoed by Occupy Wall St. Even
more recently, Thomas Piketty has suggested a tax on global wealth tax to
battle income inequality.
The final piece of Gar’s outline for a new economy – regionalism
– has been surprisingly relevant.
He argues the US is too diverse and large of a state to manage and
decentralization would help restore democracy. He observes state legislation
has been more prominent perhaps due to the gridlock nature of federal action
(154).
Evidence of the need for regionalism can be seen in the literal
areas of progress in the US.
Little reform has been passed by Congress and national legislation, but
local governments have highly active in passing legislation on policies like
minimum wage increases and paid sick days.
Tuesday, January 6, 2015
Income and Wealth Inequality
Causes of Inequality
In my view,
the root cause of income/wealth inequality boils down to power. At times
when workers have power (unions are strong, employment is high) workers can
claim more for themselves, for example better wages, which leads to the ability
for them to start accumulating wealth.
Increasing
inequality in the US coincided with the rise of the neoliberal regime, which consisted of crushing labor, deregulation,
liberalization, and privatization.
- Average wages no longer growing with worker productivity
Source: EPI
- Unions attacked (think Reagan crushing air traffic controllers strike)
- The Glass-Steagall Act, which separated commercial banking from investment banking, was repealed and the finance sector began to grow.
- CEO compensation became increasingly tied to stocks, giving them huge compensation packages.
- Citizens United ruling allows money to influence politics
Once power
has been accumulated in the form of income/wealth it becomes increasingly
difficult to change policies to stop the wealthy from accumulating more.
Reponses to Inequality
Increase Workers’ Power
- Increase the minimum wage
- Support policies that promote full employment
- Increase support for unions
Source: Bernstein
Redistribute
- Increase estate taxes (taxes on inheritances)
- Increase capital gains tax (taxes on income from owning assets)
Financial Reform
- Dodd-Frank Act (tried to restrict speculation and increase transparency – not working well)
- Financial Transaction Tax (a small percentage tax on financial trades)
- Rein in CEO pay (there’s really no proposed policy here, except discussion of a maximum wage bill: http://www.vox.com/2014/8/6/5964369/maximum-wage)
I think most people and economists would agree income
inequality is inherent to capitalism and the “free” market. I think the disagreement stems from
whether the inequality is an issue or not. Whether the people at the top are entitled to their
income/wealth and if the amount they hold is harmful to the rest of us.
More Radical Alternative Solutions
American Beyond Capitalism by Gar Alperovitz discusses policies that address and attempt
to correct the wealth disparities in the US.
- Basic Income Grants: there are different proposals for implementation, but the idea is to give each new child either a lump amount or an amount that is invested and matures until the child is 18.
- Worker Cooperatives: Worker owned and operated businesses would reduce income and wealth inequality since workers income would be more equitable and they would have ownership of a portion of their company.
- Community Development Corporations: communities loan money to new businesses in exchange for a stake in the new business, yielding a stream of income to loan to future business start ups in the community.
Participatory Economics by Michael Albert, Robin Hanel Economic Justice and
Democracy both discuss brand new economic systems that would greatly reduce
inequality.
In terms of the most helpful policies to combat inequality,
there is evidence the non-radical policies help (see below the Bernstein link
to PowerPoint slides), but in my opinion, changing the economy towards
something less capitalistic is the more meaningful change. However, it is hard to empirically
measure how much a hypothetical income grant would change inequality or how the
existence of worker co-ops help.
Other helpful resources on the topic:
Robert Reich’s Inequality for All DVD: http://inequalityforall.com/
Jared Bernstein’s Slides:http://jaredbernsteinblog.com/a-comprehensive-look-at-the-inequality-story-to-go/
Interesting YouTube video based on peer-reviewed studies https://www.youtube.com/watch?v=QPKKQnijnsM
Notes on Tom Juravich "Strategic Corporate Research"
Summary
Juravich began by claiming no discipline looks specifically at the firm for a level of analysis. I think that is incorrect. Within economic theory, economists have looked at firm level analysis - perhaps most famously in Coase's "Nature of the Firm". Applied work has looked at firm level data, for example, Pay without Performance by Bebchuk and Fried explicitly discuss the make up of specific firms with actual data on them.
Juravich then discussed why labor is taking this new approach of action. The post war labor accord which consisted of strong unions and perhaps not so toxic relationships between business and labor, was over. Globalization, increased technology, and financialization have made the old strategies of resistance obsolte. Striking at the plant when the owners of the plant are halfway around the world is not as effective as if ownership were in the US.
Juravich suggests using the wealth of information on corporations to find "pressure points" that could be leverage to make concrete gains for workers.
Implications, Questions, and Thoughts
I think first any gains from this strategy will be a band-aid for a systemic problem but that doesn't mean it shouldn't be done- there will be concrete gains for people.
Second, how reliable are the databases? Bebchuk and Fried go to great lengths in their book Pay without Performance to demonstrate how executives and boards distort actual compensation levels and earnings reports. Do these databases address those issues?
Third, even if the databases are reliable (even if they aren't, it is all we have), how effective is the strategy of leveraging these pressure points? If we do a lot of research, we could find things that outrage people or that we could use to put pressure on a certain group. What if people don't care, or don't care enough to act and if the certain groups involved are too big to be affected by union pressure?
Fourth, Juravich discussed labor as employing these new strategies, but union membership has declined since the labor accord. Will this new strategy strengthen union membership somehow? If social organizations take this work on in lieu of labor, will it decrease union membership?
Juravich began by claiming no discipline looks specifically at the firm for a level of analysis. I think that is incorrect. Within economic theory, economists have looked at firm level analysis - perhaps most famously in Coase's "Nature of the Firm". Applied work has looked at firm level data, for example, Pay without Performance by Bebchuk and Fried explicitly discuss the make up of specific firms with actual data on them.
Juravich then discussed why labor is taking this new approach of action. The post war labor accord which consisted of strong unions and perhaps not so toxic relationships between business and labor, was over. Globalization, increased technology, and financialization have made the old strategies of resistance obsolte. Striking at the plant when the owners of the plant are halfway around the world is not as effective as if ownership were in the US.
Juravich suggests using the wealth of information on corporations to find "pressure points" that could be leverage to make concrete gains for workers.
Implications, Questions, and Thoughts
I think first any gains from this strategy will be a band-aid for a systemic problem but that doesn't mean it shouldn't be done- there will be concrete gains for people.
Second, how reliable are the databases? Bebchuk and Fried go to great lengths in their book Pay without Performance to demonstrate how executives and boards distort actual compensation levels and earnings reports. Do these databases address those issues?
Third, even if the databases are reliable (even if they aren't, it is all we have), how effective is the strategy of leveraging these pressure points? If we do a lot of research, we could find things that outrage people or that we could use to put pressure on a certain group. What if people don't care, or don't care enough to act and if the certain groups involved are too big to be affected by union pressure?
Fourth, Juravich discussed labor as employing these new strategies, but union membership has declined since the labor accord. Will this new strategy strengthen union membership somehow? If social organizations take this work on in lieu of labor, will it decrease union membership?
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