Monday, June 30, 2014

American Political Preferences Are Not Well Explained By Conventional Categories

This article describes the political categories that are used by Pew in its political polling.  Pew does not divide Americans into left, right and center.  There is no coherent center in American politics.  There are two right wing groups, that have some things in common, and they are very committed.  Left leaning groups lean Democratic but many lack coherence or commitment.  The percentage of Democratic leaning Americans is larger than the Republican leaning percentage but they do not share a consistent ideology and the commitment that comes from a shared ideology.  That is why Republicans do better in elections than their numbers suggest. 

A Warning About Growing Inequality From A Billionaire

Nick Hanauer is an entrepreneur from Seattle who made billions by investing in successful start ups like Amazon.  He is not a technologist and he claims that he is not particularly smart.  He is good at seeing the future a little bid earlier than other people.  The future that he envisions for America is not a good one.  Growing inequality will lead to two bad outcomes: social revolution or a police state.  His message for his fellow billionaires is that they should support policies that will promote equality.  He believes that this will be good for the economy, and for them. It is a better alternative than revolution or a police state.  While a revolution may be unlikely, a police state can be dangerous even for billionaires.  Some billionaires will attempt to capture the state and use its power against their economic competitors.  We know what that looks like in other parts of the world.

Supply Side Economics As The New Bible In Kansas

The far right has not been able to take over the federal government but it has a program in place to take over state governments.  This article describes how a far right program to capture state governments, and put them in the service of the plutocracy, has led Kansas into a financial disaster area.  Economists, working for ALEC, which is the far right organization intent upon capturing state governments, convinced the governor that tax cuts, primarily for the wealthy and corporations, would stimulate growth in the Kansas economy.  Faster economic growth would produce more tax revenue for the state than what was lost from the tax cuts.  That is the myth that was sold to Ronald Reagan in the 1980's.  Reagan was forced to raise taxes when it turned out to be a myth.  Kansas may have to do the same thing.  The promised economic growth, and higher tax revenues, never happened.  The state budget is in deficit and its debt has been down graded by rating agencies.

The high priest of supply side economics, who sold the myth to Ronald Reagan, was part of the team that convinced the governor of Kansas to commit economic suicide.  Old charlatan's never die.  They just fade away.  Unfortunately for Kansas, ALEC found a way to bring a discredited myth, and the economist who created the myth, back to life.  Where there is a will, there is a way, and ALEC is intent upon capturing state governments, particularly in red states which have compliant governors and cooperative legislatures.  ALEC will get lots of help from conservative think tanks that helped to sell the failed tax program to Kansas.  The tax supported think tanks provide a home for economic cranks who supply the economic mythology needed by ALEC.

Sunday, June 29, 2014

Which Variation On Capitalism Will Survive And Dominate?

The graph below (click to enlarge) illustrates that capitalist societies are quite different in their outcomes.  For example, the US produces more low paying jobs than any other OECD country.  One view, discussed in this article, is that other nations will move towards the US version of unrestrained capitalism in which market outcomes dominate over social democratic forms of capitalism.  On the other hand, the wide differences that currently exist are the result of political and economic coalitions that lead to very different implementations of capitalism.  The basic question is whether those institutional differences will prevail in the future.  The recent elections in Europe show that nationalism and anti-immigration forces are a threat to the coalitions that have made a more equitable system of capitalism politically possible in many European countries.  Will the US model or the European model prevail?

The Difficult Task Of Conservative Intellectuals

Conservative intellectuals have the following problem, which is aptly summarized by this quote from John Quiggen:

The Republican party is a coalition of crazies, racists and plutocrats. But there is a political requirement to talk about policy in a way that is not obviously crazy, racist or pro-rich. The task of conservative intellectuals is to square this circle…

So how do conservative intellectuals deal with the problem of climate change without infuriating their base which has been taught to deny climate change?  They respond by shifting the argument away from climate change denial.  They exaggerate the cost of mitigation and they underestimate the risks of doing nothing.  The following post by Paul Krugman shows that reform conservatives have not found a good alternative to climate change denial.  Their economic argument is easy to attack.  Its not easy to be a conservative intellectual when your political base is crazy and anti-intellectual.

Saturday, June 28, 2014

Why Its A Good Idea To Fight Climate Change In A Depressed Economy

Paul Krugman explains why conservative pundits have the economics all wrong about the timing of government investments that will reduce carbon emissions.  They argue that we can't afford the investment in a slow growth economy.  The worst time to increase government spending is when we have a full-employment economy.  That would lead to price inflation.  We currently have a shortfall in demand, and an oversupply of capacity and labor.  Government can also borrow at very low interest rates.  We can reduce carbon emissions and create jobs by fighting climate change now.

Tuesday, June 24, 2014

CEO's Are Highly Paid But Their Compensation Is Determined By Market Forces???

It is impossible to look at the data on CEO compensation without reaching the conclusion that it has been rising at a very rapid rate relative to the wages earned by the average worker.  This creates an opportunity for some economists to justify the increase in CEO compensation and to defend corporate directors against a charge of malfeasance.  I posted an earlier article by Greg Mankiw who justified the rise in CEO compensation by consulting his introductory economics textbook.  According to Mankiw, CEO's compete in a competitive labor market.  The demand for CEO's who have the necessary skills is very high relative to the supply of candidates with the required skills.  Therefore, the rise in CEO compensation has been determined by the laws of supply and demand for rare skills.  Mankiw's argument also assumes that those rare skills have enabled to CEO's to make a contribution to organizational productivity that is a least equal to their compensation.  Mankiw's defense of CEO compensation did not require him to examine the process that corporate boards employ to determine CEO compensation.  He only had to consult his introductory textbook.

Steve Kaplan made a more sophisticated defense of CEO compensation than Greg Mankiw.  He argued that CEO compensation has risen in line with that of other highly paid professionals in the top 0.1%.  Therefore, weak corporate governance is not responsible for the rise in CEO compensation.  They were underpaid prior to 1980, and they are now being paid what they are worth.  Kaplan was at the conservative Cato Institute when he did his research.  He also presented his study at a special meeting of the NBER which honored Martin Feldstein for his many years of leadership at the NBER.  Feldstein was an economic adviser to Ronald Reagan.  He was also the Chair of the economics department at Harvard.  He did what he could to shape the department at Harvard in his image during his tenure. 

In this article, Brad DeLong reports on another study which shows that CEO compensation has risen at a faster rate than that of others in the top 0.1%.  That study used the same data that Kaplan had used to reach a much different conclusion.  DeLong claimed that he could not understand how Kaplan had reached a much different conclusion.  He changed his mind about the debate and argued that CEO compensation is not determined by the labor market.  He believes that an oligarchy which consists of CEO's, corporate board members and financiers makes the rules that better explain the rise in CEO compensation.  Some might wonder why DeLong was shocked that a study funded by the Cato Institute, and presented at an event to honor Martin Feldstein, had found a way to prove that the rise CEO compensation was market determined. 

Hedge fund managers and CEO's who are hired by private equity firms also have seen a rapid rise in their incomes.  Their compensation has not been determined by compliant corporate boards.  Private equity funds find the best executives they can find to run the corporations that they have acquired.  They also compensate them very well.  Some argue that this shows that CEO compensation has not been determined by weak corporate governance.  This argument quickly breaks down.  Private equity firms have to pay CEO level wages in order to recruit CEO's from other firms.  Moreover, the long term performance of firms acquired by private equity firms has been very poor.  The CEO's hired to run these firms have a mission to fix them up quickly in order to sell them.  Cost reductions are the easiest way to reach that goal.  They also strip the firms of assets while they are managed in order to pay fees to the private equity firms while they are under management.  It takes a very special kind of person to operate a business under those guidelines.  Brad DeLong's conclusion about an oligarchy is probably accurate.  Moreover, he should not have been shocked by that conclusion.  Economic textbooks are poor source of information about CEO compensation and so are studies funded by conservative think tanks that receive their funding from the oligarchs.

How Global Warming Will Impact Different Sections Of The US

A report commissioned by a bipartisan group, including Treasury Secretaries going back to the Nixon Administration, painted a picture of the effects of global warming in the US.  The picture is not pretty.  The team that produced the report was asked to assess the cost of the damages.  Economists typical do a cost benefit analysis that compares the cost of mitigation against the cost of future damages to the economy.  The response to that request was spot on.  It is not an economic question.  We have to determine the kind of world that we want to leave to future generations.  I don't think that many of us would want our children and grandchildren to live in that kind of world. They would certainly look back at us in anger.

Monday, June 23, 2014

Why We Overpay CEO's And What Can Be Done About It

I was quite surprised to find an article written by Robert Samuelson that I can praise.  He does a decent job in this article of criticizing the rational for CEO compensation systems.  His conclusion in the last paragraph, however, spoils an otherwise good article.  He does a good job of portraying CEO's as our new aristocracy,  and then are argues that we should let the aristocrats change the compensation system that turned CEO's into aristocrats.  Changes in tax policy under Ronald Reagan encouraged CEO's to demand higher pay.  The top marginal tax rate on earned income was dramatically reduced, and lowering the tax on capital gains encouraged CEO's to demand payment in stock options.  Government does not have to regulate the pay system which Samuelson presented as a bad alternative to the current system.  We just need to restore the progressiveness of the tax system.

The Failures Of Shareholder Capitalism

Shareholder capitalism is the current doctrine that dictates corporate behavior in the US.  This doctrine holds that the primary, and perhaps only function, of the corporation is to increase shareholder value.  That translates into increasing the stock price and returning profits to shareholders with dividend payouts.  This article illustrates the consequences of that doctrine.

One way to raise the stock price is through stock buybacks by the corporation.  That reduces the numbers of shares outstanding which elevates the value of the remaining shares.  S&P 500 corporations spent $477 billion last year on stock buybacks.  Since the doctrine of shareholder value is universal among the S&P 500 corporations, 80% of the S&P 500 participated in stock buybacks.

One of the problems with this doctrine is that a focus on short term performance may have a negative impact on longer term corporate performance.  Indeed, corporations spent 30% more on stock repurchases and dividend payouts than they did on capital expenditures.  Even worse, they borrowed money to increase shareholder value.  Non-financial corporations have borrowed $3.4 trillion since 2009.  Around 87% of that debt was used to fund stock buybacks and dividend payouts.

The doctrine of shareholder value has also been good for senior executives in S&P 500 corporations.  Much of their compensation is in the form stock options.  Most senior executives are also major shareholders in our large corporations.  Therefore, they also benefit from stock price appreciation and dividend payouts.  The corporate incentive system is perfectly linked to the doctrine of shareholder value.  Whats good for shareholders is also good for senior executives.  However, it may not be good for longer term investors or for other stakeholders in our corporations.

There are many problems with the claim that shareholders have on corporate profits.  In the first place, they don't provide the capital required for investment.  Most of the capital comes from retained earnings or from borrowing in capital markets.  There is also no reason to believe that the stock price is an accurate barometer of corporate performance. Stock prices tend to fluctuate for a number of reasons that are independent from the performance of individual firms.  For example, low interest rates cause many investors to disinvest in bonds and other financial assets in favor of stocks.  Moreover, shareholders, represented by corporate directors, have not provided adequate checks on management decision making.

The other problem with the doctrine of shareholder value is that they are given priority over other stakeholders in the corporation.  For example, employees have made a major investment in acquiring firm specific skills.  Their investment in the firm has no standing versus the interests of investors who buy and sell stocks without regard for the longer term performance of the firm.  Reducing capital investments and R&D also make it more difficult for firms to reward their customers and suppliers who depend upon their longer term performance.

Its time to move on from the doctrine of shareholder value.  Germany, for example, has a different system of corporate governance that is not dominated by the interests of stock investors.  Their corporations have done very well over time.  Germany's success in export markets may be explained by a system of corporate governance that is not dictated by short term fluctuations in stock prices.

Sunday, June 22, 2014

Obama Is An Outlaw But He Is Also A Weakling According To Washington Post Op-Eds

George Will explains why President Obama is an outlaw in this article.  He is an outlaw because he does what other presidents have done when they face resistance from the party that is not in the White House.  They use executive privilege to circumvent political opposition.  George Bush was very good at that game and so was Bill Clinton.  George Will had no problems with presidential "lawlessness" when Bush was in office but he thinks that it is a very bad idea when a Democrat is in the White House.  The Obama presidency has been very good for George Will's career.  His job is to delegitimize Democratic presidents and his audience enjoys that game.  This article was a winner.  It was the most popular Washington Post article this week.  Portraying Obama as an outlaw is part of the current vogue.  He was accused of lawlessness on foreign policy by the Washington Post's foreign policy expert who specializes in finding faults in the president's foreign policy (Krauthammer).

I find it strange that Republican pundits attack the president when he aggressively uses executive privilege to do what they don't like, while they accuse him of being weak on foreign policy at the same.  Somehow the aggressive outlaw is also a wimp.  Propaganda works better when it is internally consistent. 

Greg Mankiw As The Defense Attorney For The Super Rich

Greg Mankiw is the Chair of the economics department at Harvard.  Many of his students are children of the super-rich, and many of those who are not children of the super-rich hope to become super-rich.  It is not surprising that Harvard and the NY Times provide a platform for Greg Mankiw to reassure them about their position in society.  Mankiw has justified the huge increases in CEO compensation by invoking an outmoded economic theory that is in all of our economic textbooks.  The theory suggests that everyone's wages are determined by their marginal contribution to revenue.  Therefore, it must follow that CEO compensation has risen because their marginal contribution to revenue has been increased by a similar amount. That is, they have become much more productive over time.  In this article, Mankiw responds to Piketty's book which suggests that we may be on our way back to the kind of societies that existed prior to the 20th century which is an anomaly.  That is, a society in which inherited wealth makes it possible for many to live off of the wealth created by their forebearers.

I will not bother to summarize Mankiw's defense of a patrimonial society.  Mankiw has summarized to quite well:

The bottom line is that inherited wealth is not an economic threat. Those who have earned extraordinary incomes naturally want to share their good fortune with their descendants. Those of us not lucky enough to be born into one of these families benefit as well, as their accumulation of capital raises our productivity, wages and living standards.

A Republican Leader Explains Why It Is Conservative To Tax Carbon

Henry Paulson was Secretary of the Treasury during the financial crisis.  We made mistakes that led to the financial crisis and the government had to take drastic steps to save the financial system.  He argues that we should not make the mistake of underestimated the threat of climate change and the huge cost of the damages that are bound to occur if we do not take action today.  A conservative approach to the threats from climate change will lead to radical changes in our economy.  Republicans who worry about increasing the role of government in order to reduce the threats from climate change are making a big mistake.  If we do nothing to reduce carbon emissions,  the role of government in the economy will increase enormously in order to repair the damages that are bound to occur.  The same thing happened during the financial crisis.  Government had to take drastic actions to fix the badly damaged financial system because we failed to heed the warnings that were visible.

Paulson proposes a tax on carbon that would make it more expensive to burn fossil fuels.  That would enable us to end subsidies for green sources of energy.  Carbon emitting sources of energy would become more expensive than green energy.  We should also end subsidies to the fossil fuel industries.

Fighting climate change is a global problem but we should not let that stop us from taking actions in our own country.  The US and China are the largest emitters of carbon and we should focus our attention on them.  Paulson has funded an institute at the University of Chicago which has a mission to bring China and the US together to fight climate change.

Paulson's message to his fellow Republicans will hard for them to accept.  They have been dependent upon on the energy industries for financial support and they have convinced their base that climate change is a liberal myth.  His warning to Republicans, however, was well thought out.  It would be consistent with conservative ideology to do what is necessary to reduce the threat from climate change.  Radical steps are required in order to deal with a radical problem.  His message will also resonate with many business leaders.  Most of them understand the threat of climate change.  Moreover, many of them will see this as a business opportunity.

Friday, June 20, 2014

Putting US Spending On Healthcare In Pespective

The US spends 17% of GDP on healthcare.  The difference between US spending on healthcare and the 9% of GDP spent by the average nation on healthcare is 8%.  That amounts to $1.336 trillion excess spending on healthcare over average spending.  To put that into perspective, excess spending on healthcare in the US is about equal to the GDP of Spain which is the 14th largest economy in the world.  That would not be a problem if our healthcare outcomes were superior to the average, or if all Americans were covered by healthcare insurance, but neither of this is true.  We simply have the least efficient healthcare system in the world.  It is the best system in the world for those who have quality health insurance but that is not a good justification for the inefficiency of the system.

We Love Free Trade, Except When We Do Not

Dean Baker criticizes an article written in defense of the US Import-Export Bank.  The bank provides below market rate loans that make it easier for US firms to sell their products abroad.  Since the US needs to subsidize loans that increase US exports, the article concludes that we are all "Crony Capitalists" whether we like it or not. In other words, we have to make exceptions to the ideology of free trade in order to compete in export markets.  Baker's point is that we are only Crony Capitalists when it comes to protecting business interests.  We love free trade when we tell workers that they must reduce their wages to be competitive in global markets, and we support free trade even when it means that they lose their jobs.  Economic textbooks tell us that we all better off with free trade.  Except of course, when we subsidize businesses that compete in global markets.

Science Magazine Explains Capital in The 21st Century in Five Pages

The current issue of Science provided Piketty and a colleague a platform to condense the essence of his thesis in five pages.  Only five graphs are used to describe the changes in income and wealth inequality in Europe and the US over an extensive period of time.  Each of the graphs has links to PowerPoint slides that can be used for teaching, or for better understanding the data and their implications.  There are important differences between Europe and the US in the distribution of wealth and income.  Some of the differences are explained by the effects of war and depression, and other differences are best explained by the effects of institutional arrangements. For example, the growth in income inequality in the US is explained by changes in corporate governance.  Europe and the US are subject to similar global and technological forces, but executive compensation has grown faster in the US because of differences in corporate governance.

The article is peppered with links to the data sets and the studies that were used to develop the major topics under discussion.  Piketty was also very careful in his analysis of the data.  He discusses the strengths and weaknesses of the data and he is cautious in his interpretation of the data. The careful reader can evaluate Piketty's presentation of the data and his conclusions without undue reliance on others who have raised questions about his objectivity.  The future is impossible to predict but tax competition between nations is accelerating the growth in income and wealth inequality.  Moreover, growth in national income is on a lower trend as result of slower growth in the labor force and the rate of productivity growth.  The gap between the rates of return on wealth and labor is likely to increase without changes in our institutions.  According to Piketty, the size of that gap has an important relationship to the growth in wealth and income inequality.

Thursday, June 19, 2014

Some Views on Saving Capitalism From Business Leaders

Robert Reich relates the concerns that some business leaders have about their future, and the future of our current version of capitalism.  The hollowing out of the middle class is their major concern.  Some business leaders worry about the erosion of middle class wages and the effect that this has on demand for their products and services.  Some are also concerned that economic discontent will lead to political conflict and an increase radicalism.  Several business leaders support a more progressive tax system, but there is no reason to believe that they are in a majority. 

Wednesday, June 18, 2014

Labor Costs And Export Success

Paul Krugman argues that Germany, and many other countries, have higher labor costs than the US.  He argues that Germany has been a more successful exporter than the US despite its higher labor costs.  Competitiveness requires more than low labor costs.  Germany has been successful because it builds quality products that other nations are willing to purchase at a higher cost (and even with an expensive euro).  Krugman seems to puzzled by this but manufacturing products comprise the bulk of tradable products.  The US decided to become a services economy.  Most services are not very tradable.  We have a trade surplus in services but they are such a small segment of the export market that we run large trade deficits.

We Owe Most Of Our Income To What Others Have Accomplished Ahead Of Us

This article starts out as a critique of a yellow journalist at a yellow newspaper in Britain.  It goes on to make a more important comment about our incomes.  We benefit greatly from accidents of birth and the development of institutions that enable us to benefit from prior investments.  For example, the author has a blog but he earns his income from the newspaper for whom he works.  His writing skill is the same whether he writes for his blog or for the newspaper.  He earns his living by writing for the newspaper because it is able to monetize the skills of its journalists.  It has the circulation and advertising income to do so.  In other words, his income has been determined by the success of the newspaper and only modestly by his writing skill.  Most of us, lucky enough to have been born in rich countries, owe much of our earning potential to the institutions that helped us to become literate and numerate.  We also owe a lot to the organizations for whom we work.  We share in the profits that they receive from past investments and effective management.

Potential GDP Estimates In The US And The Output Gap

Growth in productivity plays a major role in Robert Solow's neo-classical growth theory.  This article reviews a study at the San Francisco Fed which concludes that a positive shock to the economy occurred between 1995 and the early 2000's.  The application of information technology during the dotcom boom produced a bump in productivity.  That, in turn, led to a bump in potential GDP.  If the productivity bump was temporary, the bump in potential GDP was also temporary.  That has important implications for the future growth rate in the US, and also for economic policies.

Potential GDP is measure of an economy's ability to produce output.  Actual GDP is a measure of the output that is produced.  The difference between potential GDP and actual GDP is called the output gap.  If we use the potential GDP trend line, that includes a  bump in productivity from IT between 1995 and the early 2000's, our estimate of the output gap would be higher than otherwise.  Therefore, more should be done to reduce the output gap.  On the other hand, if the increase in productivity was temporary, as the San Francisco Fed paper concludes, the output gap is much lower and we need to do less to lower the gap between potential GDP and actual GDP.  Moreover, we should expect that economy will grow more slowly in the future than it is commonly assumed.  The US economy will grow at 2% rather than 3%.  In a sense, this provides an explanation for secular stagnation that has been advanced by Larry Summers and other economists.  Of course, something unexpected could happen that would provide another bump to productivity and potential GDP.  There is no consensus, however, within economics about new technologies and their potential to increase productivity growth.

Tuesday, June 17, 2014

Obama's Foreign Policy Of Retreat

George Will wrote an opinion article in the Washington Post with the above title.  I was struck by the inconsistency between the title of the article and the content of the article. For example,  Obama was criticized for promoting regime change in Libya.  That is, his aggressive policies in Libya encouraged rebels to attack the US embassy in Benghazi.  Will also condemned the nation building policies of George Bush in Iraq.  In other words, he is against the regime change thrust of the Obama Administration in Libya, and he opposes the nation building policies of George Bush that eliminated the dictator that held the country together.  The article has little to do with the "foreign policy retreat" of the Obama Administration.  Obama was too aggressive in Libya according to Will,  and he was left with the problem of fixing the problems created by Bush's destruction of the regime that held Iraq together.  Obama chose not to perpetually occupy Iraq in order to hold it together.  This is hardly a foreign policy retreat, but Will selected a title for the opinion article that is consistent with GOP efforts to portray the administration as being weak on foreign policy.  The editors of the Washington Post are not doing their job.  Even worse, they may believe that giving George Will and other propagandists a platform is good for circulation.

The Heritage Foundation Revival Meeting On The Benghazi Attack

The GOP, in general, and the Heritage Foundation in particular, continue use the tragedy at Benghazi in an effort to discredit Obama and Hillary Clinton.  Dana Milbank reports on the recent Heritage gathering of Benghazi critics who used the event to determine who was the craziest among them all.  The attendees ignored a discussion of the available facts.  The meeting quickly turned into crazy diatribes about the Obama Administration's complicity in the terrorist attack.  It also led to an outpouring of animosity against all Muslims.  The attendees quickly attacked a Muslim woman who pointed out that there are millions of peaceful Muslims in America, and over one billion Muslims in the world.  She argued that we should not be engaged in a war on Muslims.  That was not what the attendees wanted to hear.  She was told than it took only 19 Muslims to attack the US on 9/11.  That makes all Muslims suspect of engaging in a war against American ideals.  The logic of that response is mind boggling.  It reminds me of a comment made by a US general during the Vietnam War.  He claimed that it was necessary to destroy the nation in order to save it.

How Should We Measure The Social Cost Of Carbon?

The EPA's new rules will reduce carbon emissions by electric utilities.  The new rules were justified by showing that the social benefits from carbon reduction exceeded the cost of reducing carbon emissions.  The US Chamber of Commerce has challenged the EPA justification for the new rules because some of the social benefits from carbon reduction in the US went to the rest of the world.  It opposes the new rules by arguing that the cost of carbon reduction in the US exceeds the social benefits received by the US.  The Chamber argues against the use of global social benefits in the calculations made by the EPA.

Jeff Sachs explains why the Chamber's position should be ignored by the EPA.  The Chamber's position is not only immoral, it is impractical.  If every nation employed the same justification standard, they would refuse to support carbon reduction policies that benefited the US.  Moreover, climate change is a global problem.  It will require global solutions rather than national solutions.  No country is immune from the problems created by other nations which decide against the reduction of carbon emissions.  The US approach to acid rain reduction provides a good example.  Individual states were required to pay a price for the sulfur dioxide that was carried by prevailing winds to other states.  This policy was successful in reducing acid rain in the US.  If the states that produced the acid rain only calculated the benefits from reducing acid rain in their own state, they would not have made the necessary changes that were required to benefit the nation as a whole.  The US Chamber of Commerce, which has essentially become a lobbyist against government regulations that affect their clients, should work with Chambers of Commerce in other nations to foster global solutions to a global problem.

Monday, June 16, 2014

Executive Compensation And The Great Man Theory

This article, written by a member of corporate boards, understands how the executive compensation system works.  She argues, however, that the growth in executive compensation is not fully explained by attributed it to weak corporate governance.  She argues that CEO's are rewarded excessively because we have a culture that believes in the "myth of the great man".  In particular, corporate CEO's who were not part of the great man culture, are now being rewarded for corporate achievements that are realized primarily by the work of large teams.  We have turned many CEO's into rock stars, and we reward them accordingly.  She provides many examples in this article.

Has Obama Been A Successful President?

Paul Krugman provides an interesting way of answering this question.  In the first place, there is no point in asking that question to the legions of conservatives who have been taught to hate liberalism, and the president as the embodiment of that ideology.  Bill Clinton got that treatment and Hillary will get it as well if she is nominated in 2016.  We have a well funded anti-liberal, anti-progressive industry in America.  Krugman is bothered, however, by the number of liberals, with whom he meets, who express their disappointments with the president.  Many expected him to accomplish more than he has.  Certainly, his rhetoric has exceeded his accomplishments. 

Krugman proceeds to list the president's most significant accomplishments.  Each of them is less than liberals might have hoped for, but they are significant nonetheless.  Liberals would have liked Medicare for all, but we got ACA instead.  Millions now have healthcare that they would not have otherwise been able to afford.  Many would have liked more progress on climate change.  Conservatives are livid about what the EPA is doing, and the coal industry is bitterly opposed to his policies.  The rest of the world is getting the message that the US is more serious about limiting carbon emissions, and that we are ready to take a leadership position on that issue.  Liberals would also have liked a more aggressive implementation of the Dodd-Frank banking reform bill.  The Wall Street banks know more about what has been accomplished than the public.  They have shifted their campaign funding away from the Democratic Party, and to their more reliable friends in GOP. 

We may be victims of the "Great Man" myth. Many of us expect a president to wave a magic wand and change the world.  Our democracy was not set up that way.  Our system of checks and balances works the way it was supposed to work.  Anyone who pays attention to the media in the US will also learn that it focuses more attention on the problems in the Administration than on its accomplishments which are less newsworthy than problems.  Every Sunday, the TV news shows give Republicans an equal opportunity to tell their story to the public.  They have made the attack on the US Embassy in Libya into an example of the Administration's failure for over two years.  The president's foreign policy is constantly accused of being weak.  We should not be surprised about this.  It is a longstanding position of the GOP that all Democratic Administrations are weak on defense.  The media, of course, are pleased to report whatever they are provided with by their friends in Washington who wish for a more powerful military response to every issue. 

My bottom line is that we should not expect too much from any president.  Moreover, we are much better off today than we would have been if we had elected any Republican to the presidency.  The Republican Party bears no resemblance to what it was in the distant past.  Dwight Eisenhower gave us the interstate highway system.  He understood the important role that government could play in our economy.  Since the coronation of Ronald Reagan the GOP has become the anti-government, and the anti-tax party.  Its hard to think about anything that it would like government to accomplish outside of military aggrandizement.

Sunday, June 15, 2014

Should We Be More Worried About Future Inflation Or Deflation?

Paul Krugman argues that we seldom see price inflation without wage inflation.  There is no evidence to raise a concern about wage inflation, but we should be concerned about the disinflation that might lead to deflation.  The Fed can more easily deal with inflation than it can with price deflation.

Tyler Cowen Provides Another Explanation For Slow Economic Growth

Tyler Cowen is professor at George Mason University.  He is the director of an institute at George Mason that is heavily funded by the Koch brothers.  The institute specializes in providing libertarian arguments against government regulation and programs designed to limit carbon emissions.  His blog is also one the most popular blogs on economics.  In this article he offers a unique explanation for slow economic growth in the West.  He argues that the expectation of peace is bad for economic growth.

His first move is to separate his argument about the benefits from warfare from the usual Keynesian argument that spending on warfare serves as a stimulus for economic growth.  Cowen was not a supporter of the Obama Administration's stimulus program.  His argument is that the preparation for war enables governments to win popular support for spending programs that lead to innovations that become useful in the civilian economy.  He provides support for this argument by citing historical references to the even distant past that make a similar argument.  He then lists some of the developments that were made possible by our preparation for recent wars.  His assumption is that government would not have undertaken these developments without the threat of war.

He is very careful not to advocate for the destruction and death that results from war.  His point is that governments need the threat of war to foster innovation.  Perhaps we should settle for slower economic growth and innovative activity in order to enjoy peacefulness.  

Dean Baker summarized his argument and he agreed that governments have often used the threat of war to fund innovations.  He pointed out, however, that many important developments were undertaken without the threat of war.  Moreover, Cowen's favorite political party has often opposed government programs that would have been beneficial for the economy, and for the national interest.  In the past, it was easier to get both political parties to agree upon programs that were in the national interest.  That is less true today. 

Right Wing Populism and Left Wing Populism Have Some Things In Common

Eric Cantor's loss in the North Carolina GOP primary exposed a rift between the Tea Party and establishment Republicans.  The US Chamber Of Commerce represents the business centered wing of the GOP.  Cantor was represented in the GOP primary as an advocate for the "Chamber of Commerce Plan".  That plan consists of subsidies for large corporations which they call "Crony Capitalism".  It is also associated with the bail out of the Wall Street banks which they also hate.  Eric Cantor shared the Tea Party's hatred of social welfare programs like the Affordable Care Act,  but he was an advocate for Wall Street and subsidies for large corporate interest interest groups.  Boeing's stock dropped dramatically after Cantor's defeat in the primary.  Investors were aware of Boeing's dependence upon Cantor's support in the GOP House.

Elizabeth Warren, the Democratic Senator from Massachusetts, has much in common with the Tea Party brand of populism.  She opposes crony capitalism and she was highly critical of the ways in which the TARP program was used to rescue the Wall Street banks.  She also opposes the efforts of the banking system to water down the Dodd-Frank banking reform plan.  However, the Tea Party would not support Warren in any election campaign.  Warren is an advocate for a more progressive tax system and income redistribution programs that are opposed by many in the Tea Party.

The worst nightmare for many large corporate interest groups and the financial industry would be a common version of populism in the US.  The special interest groups that support the Tea Party movement include large corporations in the energy industries and the heavily subsidized industrial farming industry.  It also includes lots of small business people who feel over-burdened by government regulations by what they consider to be high taxes.  Their financial interests deviate from the financial interests of these interest groups but they manage to hold the Tea Party together by an appeal to the social value issues that they do not share with liberals like Senator Warren.  They oppose immigration reform and social diversity in any form.  They also dislike social welfare programs that redistribute income to minority groups even if many of them also benefit from those programs.  They have learned to hate elite liberals or progressives who advocate for their financial interests but who do not share their value system.

The danger to our political system is that a large number of Americans believe that our political system has been corrupted by special interests.  That is probably an accurate assessment.  Much of what happens in Washington is a battle between interest groups which may or may not share common interests.  Neither of our political parties could run campaigns without the funding that they receive from corporate interest groups.  Our electoral system has been broken and our system of democracy may have been broken with it.  It is a system that was intentionally designed to prevent a concentration of political power.  It has worked over the years because our major parties have often been able to put the national interest ahead of the interests of either party.  That no longer seems to be true.

Thursday, June 12, 2014

The Implications Of Slow Growth In Cognitively Demanding Jobs

There has been a lot of concern about the loss of high paying jobs for unskilled workers in manufacturing.  This article raises another concern.  The demand for highly educated workers is also contracting.  Many college graduates are forced to take jobs that are not cognitively demanding. Those jobs used to be filled by high school graduates.  High school graduates are now in competition with college graduates for those jobs.  Demand has been strong for graduates from elite colleges, but there is not enough demand for highly skilled workers to absorb the number of college graduates that we produce. Some of this contraction is attributed to the collapse of the dotcom bubble. It is not the result of the financial crisis. This creates a new dynamic in which college graduates become part of the underclass, and in which those in the underclass get pushed down to the tier below.  It is not clear how this will play out in politics.  Several scenarios are discussed but most of this is guess work.  

The US Lead In Science Is Eroding: Is That Good Or Bad?

Tim Taylor reviews a paper which paints a picture of science leadership in the global economy.  The US has been well ahead of the pack for a long time but its lead is diminishing.  Science in the US continues at a steady pace while other nations are moving at a faster pace.  China and India are among the countries that are picking up speed while the US is treading water.  The pace of science is measured by the number of scientific papers published; the frequency of citation for those papers; the number of PhD's awarded in science and engineering, along with spending on R&D.

US spending on R&D remains at a constant level while it is growing rapidly in other countries.  The incentive system in the US is also part of the problem.  Science and Engineering PhD's in the US face an uncertain future.  The number of permanent faculty positions available for young PhD's is lower than the number of PhD's that are awarded.  Many will be forced to take post doctoral research positions at low salaries, or faculty positions that are not on a tenure tract.  Its not surprising that many young PhD's are taking jobs on Wall Street.  They can earn more money developing algorithms and models used by traders and investors seeking to gain an edge in their markets.

Perhaps it is a mistake to view science as a competition between nations.  The ideas generated in one country are available to scientists everywhere.  The growth of science and technology in China and India is good for the global scientific community.  Furthermore, it may not be worthwhile for the US to increase its investment in R&D in a global economy.  The products developed by a handful of scientists, who work for a firm incorporated in the US,  may produce more international jobs than domestic jobs.

US Secretary of The Treasury Lowers US Growth Forecast

The US economic growth rate has averaged around 3%.  The Congressional Budget Office has lowered its growth rate forecast to 2.1%.  In a recent speech the US Secretary of the Treasury agreed with that forecast.  A 30% drop in the US growth rate will have serious consequences in the US and in the global economy. 

Ordinarily, recessions are followed by a faster than normal growth rate which slows down when we reach full employment.  Some economists believe that the economy will rebound after the adverse effects of the financial crisis have been subdued.  Others argue that slower growth will be the new normal.  The ability of the economy to produce output is largely determined by population growth and growth in productivity.  We do not anticipate growth in the labor force and businesses are spending less on research and development which leads to growth in productivity.  This is a supply side argument for slower growth.  Economic growth is also determined by the demand for goods and services.  Demand is bound to remain constrained in an economy with slower growth in national income.  The CBO forecast implies that income will decline by an average of $2,500 per household through 2017.

A Profile Of The Economics Professor Who Upset Eric Cantor

Dave Brat is the Chairman of the Economics and Business Departments at a small college in Virginia.  He also teaches a course on divinity.  He differs from most economists by blending economics with his brand of ethics.  He believes that economics has been corrupted by a utilitarian ethic which holds that the object of the market economy is to maximize utility for the largest number of people.  He is free market fundamentalist with an unusual twist.  He believes that markets work best when they are operated by good people.  He defines a good person as a Protestant Christian.  In other words, the best of all possible worlds is a world comprised of Adam Smith and people like himself.  That is, a unique blend of market fundamentalism and Christian fundamentalism.  Brat is a true believer whose faith is consistent with that of many true believers in the Tea Party.  He will be a force to be reckoned within the Tea Party wing of the GOP dominant House of Representatives.  The 7th District in Virginia elected the perfect person to represent them in government.  They believe what he believes. 

Wednesday, June 11, 2014

Conservative Media Stars And Bloggers Paved The Way For Primary Upset In Virginia

The major Tea Party organizations did not support the candidate who upset the House Majority Whip in the GOP primary.  They were not unhappy with Eric Cantor.  Several conservative media personalities, along with conservative bloggers who reach millions of conservatives each month successfully backed the unknown professor who trounced Eric Cantor in the primary.  They were a more effective weapon in the campaign than the expensive TV ads that Eric Cantor used in his campaign. 

How Rising Student Debt Affects The Economy

This editorial describes the executive order by President Obama, that will make it easier for students to service their debt.  Student loan debt has doubled over the last seven years.  The 10% growth rate in student debt is due to rising costs at state universities, which educate 70% of our students, and the lack of family resources to meet the rising costs of education.  This has created two problems that have a serious impact on the economy.  Students who default on their debt lose access to credit and  find it more difficult to find jobs.  But graduates who are able to service their debt also have problems. They have less money to spend on other things.  Household formation is less rapid than it has been in the past, and spending on consumer durables has also declined.  The student debt burden has been bad for the economy.

The efforts to ease the student debt burden are worthwhile but it does not address the real problem.  The cost of attending college has been rising and median family income growth has been stagnant for decades.  Many families are caught in a trap.  A college degree has become a necessary, but not sufficient ingredient for a career,  but it has become less affordable for many families.

House Majority Leader Loses In GOP Primary To Tea Party Candidate

Eric Cantor's loss in the GOP primary ranks as one of the biggest upsets in electoral history.  He was ahead in the polls, and he outspent his opponent by a wide margin.  Its hard to understand how one of the most conservative leaders in the House could lose a primary to a relatively unknown candidate who claimed that Cantor was not conservative enough.  Immigration reform appears to be the issue that decided the outcome.  Cantor was accused of supporting amnesty for illegal immigrants.   Cantor denied the accusation but he did not convince the Republicans in his district.  This upset in the US was as surprising as the performance of protest parties in the European elections.  They also campaigned against immigration.

Monday, June 9, 2014

Larry Summers Reviews "House Of Debt"

The House of Debt was warmly reviewed by Larry Summers because it illustrated the harmful effect of rising household debt on the recovery from the Great Recession.  Over leveraged households reduced their consumption and that has been a more significant factor in the recovery than the ability or willingness of banks to make loans.  Summers agrees with that point, but most of his review was used to justify the response of the administration to that problem.  In essence, the administration introduced programs which did little to reduce the mortgage debt burden faced by over leveraged households, even though many, including Summers, realized that it would have an impact on the recovery.

There were many reasons, offered by Summers, for not introducing programs that would enable households to use the bankruptcy process to reduce the principle on their mortgage debt.  He argues that it would have impossible to get the votes needed to pass the necessary legislation.  He recognizes that this would have required troubled banks to take write downs of the mortgage debt. that might have made it more difficult to prevent their collapse, but he argues that other factors were more important.  He cites regulatory issues, legal issues and implementation problems as the major reasons for ignoring that option.  This article, provides an analysis of Summer's defense.

The Rise Of Market Fundamentalism In US Is A Republican Thing

Daniel Little compared the change in public opinion about market fundamentalism in the US with the change in Sweden.  Public opinion in the US about the role of government in providing basic support for the needy has been relatively constant among Democrats.  However, it has declined dramatically for those who identify themselves as Republicans.  Public opinion in the US has become polarized.  The gap between Democrats and Republicans on social policy issues has increased enormously since the 1980's.  The widening of the gap is almost totally the result of changing attitudes among Republicans.  The gap widened most significantly on the attitude towards public debt.  Republicans and Independents have become less supportive of public debt.  That explains why the GOP has focused so much attention on the growth in public debt.  Its base does not want to pay taxes to fund social programs that the GOP has identified as the major factor in the rise of public debt.  The public debt issue has also been effective among independents.  Their concerns about the rise in public debt has also grown over time.  This result is illustrated in the following graph (click to enlarge).  It makes sense for the GOP to build its campaign strategy on amplifying the attitudes that exist within the GOP base, and by justifying the attitude change by an appeal to fiscal responsibility. This also helps them to win support among independents who have grown more concerned about public debt.

Daniel Little found that support for public programs that benefit the less affluent has increased in Sweden over the same time period.  Public support for social diversity has also increased in Sweden despite the growth in immigration.  The forces that shape public opinion in Sweden and the US must be very different.  The Republican Party in the US has its own news network, and the owner of that network also owns the Wall Street Journal.  They get a lot of ideological support from the plethora of GOP think tanks that are funded by wealthy ideologues.  Their contributions to these organizations are generally tax deductible.

Sunday, June 8, 2014

Is It Possible For Governents To Put A Cap On Carbon Emissions?

Roger Peilke Jr. wrote an article in the Financial Times which argued that a government imposed cap on carbon emissions was logically impossible.  He offered two reasons in support of his argument.  He argued that there is a strong correlation between GDP and carbon emissions.  Since governments do whatever they can to grow their economies, they are not likely to cap carbon emissions.  Moreover, governments cannot provide the innovations that would enable a shift in our energy sources from fossil fuels to alternative sources.  It follows from these two premises that a cap on carbon emissions is logically impossible.

Paul Krugman attacks Peilke's logic in this article.  He points out that the link between carbon emissions and GDP is not as strong as Peilke assumes.  The carbon intensity of GDP can be altered if the price is right.  That is, the social cost of carbon emissions can be factored into the prices that we pay for the products that we consume.  The market system will work to reduce the carbon intensity of GDP as long as we get the incentives right.  He also argues that the two largest contributors to carbon emissions are electricity production and transportation.  A shift from coal to natural gas or green technologies to produce electricity would reduce carbon emissions.  Furthermore, there is not a strong correlation between the consumption of electric power and GDP.  We can also produce more fuel efficient electrical appliances which reduce consumption without reducing appliance production.  We can also reduce the carbon intensity of GDP by using mass transportation and by building less carbon intensive vehicles.  He applauds recent US regulations which require the auto industry to build more fuel efficient vehicles. These requirements will force private industry to invest in innovations that reduce the carbon intensity of transportation.

Krugman understands that it will not be easy to reduce the carbon intensity of GDP but he argues that it is not logically impossible for governments to do so.  Therefore, Peilke is wrong to claim that it is logically impossible for governments to reduce carbon emissions without limiting GDP growth.  The content of GDP can, and should be made less carbon intensive.  Of course, getting the incentives right requires governments to intervene in the economy in a serious way.  For example, the sale of light trucks is more profitable than the sale of fuel efficient vehicles.  US consumers also seem to prefer light trucks to fuel efficient cars.  The fossil fuel industries are also threatened by government interventions that make fossil fuels more expensive.  The unused reserves that they have on their balance sheets would become less valuable.  Moreover, unless developing economies follow the lead of the US and other western countries, the problem becomes more difficult to solve.  China, for example, has passed the US in carbon emissions.

Wednesday, June 4, 2014

Shuffle Off To Buffalo This Week

I will be traveling the rest of the week.  I will attend the 90th birthday party for one of my cousins.  He is off to Europe after the celebration with his girl friend.  I will have to find out what he is eating. I don't think that his diet is glutton free.  He must have another secret.  I hope it includes things that I like.

Globalization, The Tory Soul And The Nation State

The central economic issue of our time is the advance of globalization.  It is consistent with the free trade wing of the Tory party, but the cultural changes that follow from globalization are inconsistent with the conservative element in the party which likes to keep things the way that they were.  The recent success of the UKIP Party in the European elections reinforces the conservative wing of the party, and it sharpens the divide within the party between the free traders who capture the spirit of the City of London, and the Tories who reside in the countryside and want to preserve the traditional culture. 

This story sounds a bit similar to what we observe today in the Republican Party.  It has embraced the Tea Party which dislikes Wall Street and the cultural and economic changes that result from globalization, but it also supports multinational corporations and the advance of globalization along with the financialization of the economy.

The Labour Party in Britain and the Democratic Party in US are also torn by the advance of globalization.  It has not by good for their constituents in labor unions, but no political party can afford to alienate the large corporations that benefit from globalization and the financialization of the economy.  It would appear that the real tension is not within the major political parties.  Globalization has moved faster than the ability of nation states to adapt to the changes that follow from globalization.

Jeff Sachs Tells Us Why He Likes The New EPA Regulations

Jeff Sachs argues that the EPA and the White House has done its homework.  He describes the EPA's strategy which lets states and regions determine the best path to meeting the carbon reduction goals that have been set.  He also believes that the rest of the world will respond to the leadership that the US is taking to reduce carbon emissions.  That will have an effect on the Paris negotiations at the end of the year.  In previous negotiations the US has been viewed as a reluctant participant in setting international carbon reduction targets.

Sachs is no fool.  He understands the energy industry will do whatever it can to prevent the EPA from enforcing the targets that it has set.  The EPA will generate a lot of revenue for the lawyers and propagandists that the energy companies will employ on their behalf.  The US Chamber Of Commerce has already started its propaganda campaign on their behalf.  Sachs believes that the days of climate change denial are numbered.  Moreover, Sachs does not mention the way that the White House has framed the EPA strategy, but it may be more effective than previous than past efforts to frame the issues.  The president is telling the public that reducing carbon emissions will have immediate public health benefits.  Air pollution from coal burning electric utilities is a public health hazard today. 

Tuesday, June 3, 2014

How The Concept Of Competitiveness Justifies Rising Inequality

The European Commission is demanding that struggling nations in the eurozone make difficult structural changes to improve their competitiveness.  The underlying assumption is that they will be able to export their way to economic growth by becoming more competitive.  The problem with that assumption is that it is impossible for every nation to run trade surpluses.  One would think that this is an obvious problem with the premise of the neoliberal ideology that defines the appropriate response to the economic problems in the eurozone.  This article argues that the concept of competitiveness has been used to legitimize inequality in all areas of our lives.  Moreover, while fair competition has some redeeming social values in a meritocracy, it becomes unfair when the winners in the competition are able to purchase the support of the referees who are supposed insure that we have a level playing field.

The pervasiveness of competition in our lives is overwhelming.  We watch TV shows in which chefs attempt to win competitions with other chefs and a plethora of other shows in which contestants compete with each other in wide variety of contests.  The outcome of these competitions is always the same.  There is only one winner, and there are a large number of losers who must accept their defeat gracefully.  To the winner goes the spoils of victory.

It is a simple step to take the idea of individual competition to the next level.  Corporations and states compete in a global economy and they are do what they can to adapt the economic contests to their advantage.  We have gotten to the point where it is no longer possible for the state to legitimize the competition because everything can be purchased.  The market economy has been transformed into a market society in which everything is up for sale.  The winners in the competition are in a position to purchase the referees. The media are perfectly happy to turn everything into a horse race that attracts an audience eager to bet on the outcomes.

CNBC recently interviewed Thomas Piketty.  The opening preamble to the interview was that we live in a meritocracy in which inequality is legitimized by the outcomes of a fair competition.  The preamble assumes that the race to the top is a fair competition and that the rewards that go to the winners are based upon merit.  How could anybody write a book that argued against growing inequality? Following the Piketty interview, CNBC asked Kevin Hassett, an economist from the conservative American Enterprise Institute, who wrote a book during the dotcom boom that predicted a rise in the Dow Jones to 36,000, about Piketty's book.  Hassett declared that the Financial Times destroyed Piketty's thesis, and he made several comments about the book which showed that he had not read it.  CNBC did its job.  It delegitimatized Piketty and it legitimized the underlying logic of a meritocracy which properly rewards the winners and punishes the losers.  Competition is the magic that makes the system work.

France And Italy Are Caught In An Economic And Poitical Trap

Economic and political problems continue to escalate in the eurozone.  France and Italy are the second and third largest economies in the eurozone and they are not meeting the economic goals set by the European Commission.  Budget deficits in both countries continue to grow as a percent of GDP.  The basic problem is slow economic growth in both countries.  Slow growth means slow growth in tax revenues.  Its difficult to cut budget deficits when tax revenues are not growing.  When that happens, the government can either cut spending, which might slow down economic growth even further, or it can cut taxes which might stimulate the economy, but it may also cause budget deficits to rise even further.

The fiscal austerity demanded by the European Commission may worsen the economic problems in France and Italy.  Furthermore, it will not be easy to implement unpopular spending cuts demanded by Brussels after the strong performance of euroskeptic parties in the European elections.

Leaders in the European Commission continue to be committed to neoliberal economic ideology.  The central tenet of this ideology is that France and Italy can become more competitive by making difficult structural changes in their economies.  That usually translates into making their labor markets more flexible.  It is assumed that wages will fall and make their products more price competitive in export markets.  Falling wages, however, are a double edged sword.  Lower wages may make their products more competitive in export markets, but they will also reduce consumer demand in their domestic markets.

The eurozone is also struggling with another problem.  Prices continue to fall throughout the eurozone.  The inflation rate is well below the 2% target and there is a risk of deflation in the eurozone.  Deflationary spirals are very difficult to stop.  The central bank may use more aggressive monetary policies to stimulate demand but it is unlikely that they will be as aggressive as those that have been employed in the US.  Inflation in the US is still well below its 2% target.

Monday, June 2, 2014

The Short Answer To The Financial Time's Critique Of Piketty

Thomas Piketty wrote a ten page response the the FT's critique.  This article summarizes his response to the critique.  It does not alter his major conclusions at all.  One of the reasons for the popularity of his book is that it is well written.  Much of the technical detail is presented in footnotes which provide links to the raw data, and the rationale for the choices that he made about the data sources that he selected.  The FT used the links that he provided to his Excel files but it ignored the careful explanations that were provided for the data sources that he selected.

The major criticism made in the FT's critique is that inequality in Britain has not increased in recent years.  Moreover, when the British data are combined with that of other European nations it leads to a conclusion that there has been no growth in inequality in Europe.  Much ado has been made about nothing.  However, it turns out that the FT reached its conclusion that inequality in Britain has not grown in Britain by altering the data sources that it used to reach that conclusion.  The FT used Piketty's tax record data for part of its analysis, but then it shifted to the use of survey data for the more recent period in which it found no increase in inequality.  Piketty chose not to use survey data in his analysis because wealthy people traditionally under report their wealth.  The difference between the survey data and the tax data is very large.  It would appear that the FT shifted to the use of survey data in order to reach its conclusion that there has been no recent growth in inequality in Britain or in Europe.

If the goal of the FT critique was to shift debate away from growing inequality it may have done its job.  The debate is now about methodology and not about the real problem of growing inequality.  This is much like the debate about climate change.  A handful of denialists have shifted the debate from the conclusions reached by the vast majority of climate scientists to methodology.  Those who benefit from climate change denial have taken great advantage of this shift.