Greg Mankiw Debates Piketty On National Public Radio

NBR featured a debate between the Chairman of Harvard's Economics Department, Greg Mankiw, who is also the Vice President of the American Economic Association.  Mankiw's textbooks are also among the best selling economics texts in the US, and he has been an economics adviser to George Bush and to Mitt Romney.

Piketty was asked to summarize his book.  He has become quite good at summarizing a very long book that is loaded with data.  He reviewed the historical data on income inequality, and the concentration of wealth, and he suggested that the future of is not determined by the past.  It is possible for the democratic system to modify the future so that we do not duplicate the level of inequality that existed in the 19th century.  In his view, capitalism should be the slave of democracy instead of the other way around.  It is not too late to reverse the current trends in which rising inequality reduces the influence of the middle class which is an essential ingredient of an effective democracy.

Mankiw complimented Piketty on the success of his book.  He then shifted his focus to what he called the "false narrative" of the book.  He argued that the concentration of wealth does not follow from a high rate of return on capital.  People can choose to spend their income or to save it.  We need to encourage people to save their income, and to invest it, rather than tax it away.  He then followed Milton Friedman in arguing that economics is a positive science and not a normative science.  Economists should not be in the business of determining the appropriate degree of income and wealth inequality.  Piketty's normative statements about the level of inequality are best left to philosophers. Economics should remain a pure science and not return to its historical roots as political economy.  He then state his objections to the wealth tax that Piketty proposed.  Instead of taxing the wealthy, we need more programs to encourage savings and investment among lower income Americans.  That is the best way of reducing the concentration of wealth.  We should also take steps to improve the educational system.  That will equalize economic opportunity which is superior to policies designed to equalize the results of the market system which, according to Mankiw, rewards people according to their productivity.  Mankiw also argued that a tax on consumption would be better than a tax on income or wealth.  Piketty reminded him that George Bush made the tax system less progressive when Mankiw was his adviser but he did not advocate a consumption tax to replace the lost tax revenue.
He also could have also asked him to explain why conservative economists are usually asked to advice republican politicians if there is no connection between the "positive science" of economics and the normative outcomes of the political decisions that are made.  Piketty is too much of a gentleman to embarrass a prominent economist in public.

(the link to the radio broadcast is an arrow in the top left hand corner of the webpage)

US Government May Seek Criminal Charges Against Two Large Banks

Banks have been protected from criminal charges by a problem that has made many banks "too big to jail".  The Justice Department has searched for ways to punish banks without putting them out of business.  A criminal charge might put a bank out of business if bank regulators were forced to revoke their charters if the bank were found guilty of a criminal offense.  Sentiment in the Justice Department has been changing about bringing criminal charges against large banks.

BNP Paribus is France's largest banks.  It is accused of doing business in Sudan and in Iran after they were blacklisted by the US government.  Credit Suisse is Switzerland's largest bank. It is being targeted for assisting US citizens to evade taxation by the use of tax shelters.  Prosecutors have been having discussions with their US regulators to find ways to bring criminal charges against them without revoking their charters.  HSBC had avoided criminal charges for enabling money laundering, and JP Morgan avoided criminal charges for aiding and abetting the Madoff Ponzi scheme.  They were handed billion dollar fines instead of being charged with criminal offenses.  That practice may be coming to an end.

What Are Critics Saying About Piketty?

Conservative critics have started to come out from under the rocks.  This article reviews some of the responses.  It was difficult to determine the winner of the worst critic award.  The Wall Street Journal made a strong effort to win the award, but the winner may be the critic who admitted that she had not read the book, but that she did not like what she had read about the book.  There have even been some criticisms from the left.  They tend to support most of Piketty's arguments but they have a different public policy response in mind.  They believe that public policy in the US had led the reduction of inequality following the end of WWll.  It included more than progressive taxation.

How Did The US Become A Mass Incarceration Society?

In 2012 the US incarcerated 2.2 million individuals.  That is five times the average incarceration rate of OECD nations.  This article explores some of the reasons for the high rate of incarceration in the US.  It would appear that the answer is simple.  The incarceration rate rose rapidly beginning in the 1970's; the rate tripled as a result of public policy decisions.  The 1970's was a period of civil disobedience and heavy drug use.  Getting "tough on crime" became a popular political slogan.  Being tough on crime also meant getting tough on drug use.  Mandatory sentences became a standard practice in almost every state.  Social science research also contributed to the increase in the incarceration rate.  An important study by criminologists concluded that rehabilitation did not work.  It was better to keep criminals in prison than to release them so that they could commit another crime.  The difference between the US incarceration rate and OECD nations was also affected by a weaker social safety net in the US.  What the US did not spend on the social safety net was spent on prisons.

The incarceration rate in the US has declined in the last couple of years.  Some states have even released prisoners because of overcrowding.  The high cost of incarceration may cause many states to reconsider some of their policies which mandate prison sentences.

Tech Giants Settle Antitrust Suit

64,000 engineers filed a class action suit against Apple, Google, Intel and Adobe.  The suit contended that the firms had agreed not to poach engineers from each other.  The engineers argued that this reduced their potential wages.  The tech giants agreed to a $300 million settlement which amounts to only a few thousand dollars for each of the plaintiffs in the suit.  It would appear that the tech giants were the winners in this settlement.  It is pretty clear that they cooperated with each other to restrict competition for talented engineers.  The settlement is small change to these companies and for the engineers.  There is a link to the documents pertinent to the suit and the settlement in the article.

Pfizer Pursues Acquistion That Will Enable It To Reincorporate In UK

This article describes Pfizer's pursuit of a UK competitor in the drug industry.  Pfizer would reduce its tax burden substantially by reincorporating in the UK.  It would also be able to repatriate billions in foreign profits that it would have to pay taxes on if it brought them back to the US.  In an age of globalization, multinational corporations like Pfizer have no loyalty to any particular nation.  They are effectively corporations without a country.  Pfizer's CEO claimed that his mission is to increase shareholder value.  Pfizer's shareholders have no national identity either.  Money has no home.

The Elevation Of Ignorance And Fear In Our Electoral System

One of the problems with our political system is evident in Georgia.  The NRA, which is a lobbyist for gun manufacturers has had a profound influence on politics in the US.  It has created an alarm among citizens with a powerful emotional attachment to guns, that the government is intent upon disarming them.  This increases their contempt for government "elites" who don't understand ordinary people and it makes them susceptible to politicians who prey on their anxieties.  In the confederate states, and in much of rural America, politicians have discovered that they can win elections by easing restrictions on the right to bear arms.  The state legislature in Georgia has passed a law which grants its citizens the right to bear arms when they go to church. It has also made it easier for its gun toting citizens to enter public buildings bearing arms.  Its hard to imagine how this is in the public interest but it has been a proven way to get elected in Georgia.  Even worse, it tramples upon the rights of the emotionally undisturbed to attend public events without having to worry about some crazy person who can use a weapon to overcome a feeling of powerlessness or to express their unhappiness with government.