Paul Krugman Crosses the Line

Gerald Epstein

In his recent New York Times opinion column, “Sanders Over the Edge” (4/8/16), economist Paul Krugman offers his readers a basketful of misinformation on important economic matters about which he should – and probably does – know better. The column contains a large number of snipes and a great deal of innuendo against Bernie Sanders and his supporters, but here I focus on his claims about “Too Big To Fail” (TBTF) banks, their role – non-role, according to Krugman –  in the financial crisis, and Sanders’ understanding of the policy tools available to deal with them. Krugman’s claims about these issues are misleading, almost certainly wrong, and, in my view, call into question the credibility of his New York Times column as a source of economic information and analysis.

Krugman starts here:

“Bernie is becoming a Bernie Bro.” I’ll leave it to others to dissect this one. Moving on:

“Let me illustrate the point … by talking about bank reform.

“The easy slogan here is ‘Break up the big banks.’ It’s obvious why this slogan is appealing from a political point of view: Wall Street supplies an excellent cast of villains. But were big banks really at the heart of the financial crisis, and would breaking them up protect us from future crises? Many analysts concluded years ago that the answers to both questions were no.”

As you can see by following Krugman’s link here, this is not, what Krugman suggests it is: it is not a link to an article quoting multiple analysts presenting strong arguments with evidence that large banks were not responsible for the crisis. It is a link to an opinion piece by Paul Krugman himself. Period.

And, moreover, in this linked piece, Krugman is far more circumspect and uncertain of the answers than if implied in his statement “that many analysts concluded years ago.” So, who are these “many analysts”? On what basis did they reach their conclusions?

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The WSJ and NYT Spin Elite Tax Fraud as “Good News”

William K. Black

A single Panamanian law firm—one of many hundreds of such firms in the world that specialize in aiding tens of thousands of elites to evade taxes—has had over a million of its documents leaked to a consortium of investigative journalists.  Neither the New York Times nor the Wall Street Journal are part of that consortium, and neither seems embarrassed about that failure.  Instead, they have filled their pages with pieces about the Panama leaks that are spun so brazenly and bizarrely that as a reader even I was shocked at their audacity.

The New York Times was late to the story, but its April 5, 2016, analytical piece Peter Eavis that bore this astonishing title:  “In Panama Papers, Finding the Good News in Widespread Tax Cheating.”  The Wall Street Journal, despite its less bizarre titles managed to surpass the NYT with the volume and the blatancy of its spin.  In an April 5, 2016, article entitled “Panama Papers: Hiding Cash Has Become Crummy Business.”  The thrust of that story is that laundering money and tax evasion is a “crummy business” not because it is immoral and destructive, but because it is purportedly experiencing reduced profitability.

But the WSJ’s editorial pages always trounce the increasing lunacy of their news pages.  News of endemic fraud by elites is simply an opportunity to attack the paper’s enemies.  Bret Stephens’ op ed has a title that exemplifies this attack syndrome: “‘C’ Is for Corruption: The Clintons are the Brazilianization of American politics.”  A reader might wonder what all of this had to do with the Panamanian leak.

This is Stephens’ explanation.

“China: A leak of 11.5 million documents from Panama-based law firm Mossack Fonseca—instantly dubbed ‘the Panama Papers’—implicate relatives of President Xi Jinping along with other top officials of sheltering fortunes in offshore tax havens. Mr. Xi is supposed to be leading an anti-corruption campaign.

“The Panama Papers have also exposed billions in assets belonging to close friends of Vladimir Putin …

“But nobody can be surprised by any of this. And nobody should look away from the central lesson of the scandal, though they’re trying. To wit, the story here isn’t about tax evaders and offshore accounts, deplorable as they may be. It’s about public policies and incentives that make a career in politics an expedient route to personal enrichment.”

See, the story isn’t really about corrupt private elites—it’s about corrupt government elites.  Except that from Murdoch’s perspective this means a chance to take a shot at the likely Democratic presidential nominee.

Fortunately, the WSJ’s entire editorial staff served the nation by putting “The Panama Papers in Perspective.”  The WSJ is shocked and distressed that the public is focusing on the wealthy engaging in tax abuse, including tax fraud.  The WSJ wants us to adopt the “perspective” that this is merely a “distraction” foisted by “the political class” from the real issue that government is corrupt.

“That’s not stopping the media from jumping to conclusions, and many are oddly focusing on tax avoidance. The claim is that these leaks show how easily wealthy individuals have been able to use Panamanian bank-secrecy laws—long a target of global tax campaigners—to ‘conceal’ their wealth.

“The ICIJ solicited comment from Gabriel Zucman, a student of left-wing economist Thomas Piketty who last year published a book decrying offshore tax havens, and he dutifully opined, ‘These findings show how deeply ingrained harmful practices and criminality are in the offshore world.’

“The Organization for Economic Cooperation and Development described Panama as the ‘last, ultimate tax haven’ and clearly hopes these reports will force the Central American country to abandon its secrecy laws.

“The far more important question is how so many public officials in so many governments managed to accumulate so much money.

“The mistake now would be to narrow the focus prematurely, zeroing in on tax avoidance that is a hobbyhorse of the political class but in this case is a distraction. The real news here are the incomes and far-flung bank accounts of the political class.”

See, we all have it all wrong.  We all need to read the WSJ and the NYT and celebrate the good news of massive tax fraud by business elites and join together to denounce government.  Ignore the tens of thousands of wealthy men behind the screen of bank secrecy evading taxes.  They are a “distraction.”

William K. Black is Associate Professor of Economics and Law, University of Missouri-Kansas City.

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Heatwave — A Taste of More to Come

Martin Khor

The present heatwave in Malaysia may well be the worst in living memory.

An elderly friend, who has experienced the turbulent events in the past century, told me he has never experienced temperatures as high as those of the past few weeks.

The blame has been put on El Nino. And it is hoped that its effects will be felt only once in many years.

However, we should be prepared for the worst. For the heatwave of 2016 may be a foretaste of more or worse to come.

The almost unbearable condition in recent weeks has been due to a temperature rise of several degrees Celsius. Even if that is wholly due to El Nino, the same or even greater temperature rise is predicted to take place due to climate change.

Already the world is now experiencing a 1°C increase in mean temperature, compared to pre-industrial levels.

A two-degree increase will be devastating and any rise beyond that may be catastrophic. At present rates of Greenhouse Gas emissions, we are on track for a four-degree worldwide increase.

Even if governments implement the climate plans they have pledged in the Paris Agreement (adopted last December), the global mean temperature is projected to rise by more than three degrees, which would be catastrophic.

Thus, what we are experiencing with El Nino today may well become the “new normal” due to global warming. Maybe not immediately, but in the lifetime of many Malaysians, especially the young.

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How Much Has Global Economic Power Really Shifted?

C.P. Chandrasekhar and Jayati Ghosh

Much has been made of how there has been a substantial shift in the balance of economic power between the advanced capitalist economies (or the “North”) and some economies of the global South. It is true that very recently the hype surrounding “emerging markets” has died down, as international capital flows have swung away from them and many of them have shown decelerating growth or even declines in income as global exports fall. Nevertheless, the feeling persists that – in spite of a supposedly resurgent US economy – the advanced economies are generally in a process of relative decline, while the developing world in general and certain economies in particular have much better chances of future economic dynamism. And this process is generally seen to be the result of the forces of globalisation, which have enabled developing countries, especially some in Asia, to take advantage of newer and larger export markets and improved access to internationally mobile capital to increase their rates of economic expansion.

Chart 1

Chandrasekhar-Ghosh--Advanced economies GDP share

But how significant has this process actually been?

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A Note on Development Under Risk in the Arab World, Part 4

The Construction and Destruction of Sovereignty

Ali Kadri

To what extent is the problem of unemployment in some countries of the Arab World an outcome of monetary policy that targets low rates of inflation with no regard to unemployment? To what extent is the problem of stagflation in some countries an outcome of the policy mix of raising short term interest rates while devaluing national currencies? To what extent has the adverse impact of a chronically high rate of unemployment aggravated the contraction triggered by an external shock (falling oil price), and thus created a debilitating path dependence?

The mechanisms that answer these questions are like irrigation valves channelling income flows between various nationally based working strata and internationally based financial interests. They are about who (which class) has enough power to get a higher share of income and how much. As the labour share from total income fell, in the Arab World, to the lowest global ranks—a result of the absence of politically organised labour, inflation, and wage compression—the steadying of the national currency against the dollar (pegged rate) channelled wealth not only up within the same society, but also abroad. Countries with balance of payments constraints are short-leashed by institutional lenders who can wreak havoc on nation states by simply delaying disbursements that support the national currency (if the national currency devalues, inflation rises and so on.). In a sense, this policy, like many other neoliberal measures, makes corruption legal. If corruption is defined as the diversion of public wealth to private use, the exchange rate and monetary policy under open capital account regimes, which was not only legal but also supported by major international financial institutions, is corruption writ large.

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Amit Bhaduri: Development and Equity

On March 10, the Global Development and Environment Institute (GDAE) awarded the 2016 Leontief Prize to Amit Bhaduri and Diane Elson for their work to improve our economic understandings of development, power, gender, and human rights.

Dr. Bhaduri’s lecture focused on issues of power in economics. He says that current economic curricula teach the subject as “Adam Smith minus Karl Marx.” Bhaduri’s work has covered many fields, but his driving force is the question of how people relate to and dominate one another. He calls into question the ideas of the mutual dependence” of labor and capital and “market equilibrium” in an efficient market. He stressed the necessity of equality in order to achieve true mutual dependence, otherwise the mutual nature of the relationship falls apart. There are few cases in which market equilibrium is achieved. Standard economic theory requires that all firms in a market are in perfect competition, and therefore must accept the going rate for selling their goods and services. It is more likely that firms, often using misinformation campaigns, act more as price-setters than price-takers. Bhaduri also spoke on the history of banking regulation in the United States and development and growth strategies in India.

An interview with Dr. Bhaduri, conducted on the occasion of the Leontief Prize ceremony, is below. The transcript of the talk he delivered at the ceremony is posted after the jump. An interview with Dr. Elson is available here. (The full video of the ceremony is available online, with Dr. Bhaduri’s talk beginning here and Dr. Elson’s here.)

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Diane Elson: Equity and Development Through a Gender Lens

On March 10, the Global Development and Environment Institute (GDAE) awarded the 2016 Leontief Prize to Diane Elson and Amit Bhaduri for their work to improve our economic understandings of development, power, gender, and human rights. An interview with Dr. Elson, conducted on the occasion of the Leontief Prize ceremony, is below. The transcript of the talk she delivered at the ceremony is posted after the jump. An interview with Dr. Bhaduri will be posted later this week. (The full video of the ceremony is available online, with Dr. Elson’s talk beginning here and Dr. Bhaduri’s here.)

Dr. Elson, emeritus professor at the University of Essex, spoke about her research on development through a gender lens. She prefaced her talk with the following quote, “Standard macroeconomic policy is not gender neutral. It emphasizes the expansion of market activity and devalues non-market activity. Development measures should be adjusted to account for this.” Elson quoted from time-use surveys and research on gender and non-market activity. A man in Buenos Aires spends an average of 89 minutes per day on unpaid work, while a woman spends 256 minutes per day. Adding paid work, men average 422 minutes per day and women 436 minutes per day. In India, the numbers for men and women are 36 and 354, respectively. By Elson’s estimates, putting a monetary value (even just minimum wage) on unpaid work would inflate GDPs by 20-40%. She suggests a system to remedy this situation: Recognize, Reduce, and Redistribute. Recognize unpaid work by incorporating it into GDP. Reduce the imbalance by improving, for example, water infrastructure, which women in developing countries spend disproportionate time and energy gathering. Finally, redistribute unpaid work by offering parental leave for new fathers in addition to new mothers.

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Delhi’s Air Pollution is a Classic Case of Environmental Injustice

James K. Boyce and Aseem Shrivastava

James K. Boyce teaches economics at the University of Massachusetts Amherst. Aseem Shrivastava is a Delhi-based writer and co-author of Churning the Earth: The Making of Global India.

The news that India is introducing a new tax on car sales to help combat severe air pollution and congestion problems has unsurprisingly been decried by the country’s car industry.

The chair of India’s largest car manufacturer, Maruti Suzuki, says the tax “is going to hurt the industry, and will impact growth and affect job creation”. Following the announcement, shares in Maruti Suzuki traded more than 5% lower.

But others have celebrated the move, recognising that business as usual cannot continue in a country home to the four most polluted cities in the world. “Once Indians owning cars was seen as a sign of economic success. Now this sort of tax is seen as Indians being responsible,” a senior research fellow at a Delhi-based think tank told the Guardian.

The tax comes on the heels of the Delhi government’s unprecedented step this winter of imposing an emergency “odd-even” license plate number rule to restrict private car use to alternate days.

Reports of extreme air pollution in Delhi and other Indian cities are nothing new. The World Health Organisation estimates that more than 600,000 people die each year as a result of outdoor air pollution in India. Much less discussed is the fact that not all residents are equally affected, nor equally responsible.

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Assuming Away Unemployment and Trade Deficits from the TPP

Timothy A. Wise and Jomo Kwame Sundaram

Timothy A. Wise is Policy Research Director at Tufts University’s Global Development and Environment Institute. Jomo Kwame Sundaram is a former United Nations Assistant Secretary-General for Economic Development and co-author of “Trading Down: Unemployment, Inequality, and Other Risks of the Trans-Pacific Partnership.” See earlier posts on the TPP and the debate over how to model its effects here and here.

In an old joke, a shipwrecked economist is asked for his counsel on how the stranded group can be rescued. “Assume we have a boat,” he begins.

Robert Lawrence and Tyler Moran, writing for the Peterson Institute for International Economics, seem to have missed the joke in their recent repeat of the same flawed assumptions of their colleagues’ hugely optimistic assessment of the Trans-Pacific Partnership (TPP) Agreement which prompted our own paper, “Trading Down: Unemployment, Inequality, and Other Risks of the Trans-Pacific Partnership.”

Claiming to address contrarian findings that the TPP may well cause job losses and increase income inequality, Lawrence and Moran assume away the causes – downward pressure on wages and employment due to the consequent “race to the bottom” – which have made free trade agreements so controversial.

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Tackle “Hidden Hunger” by Improving Food Systems

Jomo Kwame Sundaram

Jomo Kwame Sundaram was the Coordinator for Economic and Social Development at the Food and Agriculture Organization of the United Nations (FAO) and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

Nutrition is complex and multi-dimensional. Micronutrient deficiencies or ‘hidden hunger’ are much more widespread than chronic undernourishment or hunger, understood as inadequate dietary energy. Micronutrient deficiencies refer to the lack of essential vitamins, minerals and other substances required over the human life cycle by the body in small amounts. Micronutrient undernutrition has long-term effects on health, learning ability and productivity, leading to high social and public costs, reduced work capacity in populations due to high rates of illness and disability, and loss of human potential.

Although the most severe problems of micronutrient malnutrition are found in developing countries, people of all population groups in all regions of the world are affected by some micronutrient deficiencies. More than two billion people in the world are deficient in key vitamins and minerals, particularly vitamin A, iodine, iron and zinc. This is a serious impediment to socio-economic development, exacerbating the vicious cycle of malnutrition, underdevelopment and poverty. Not surprisingly then, the economic gains to society of reducing micronutrient deficiencies are estimated to have a benefit-to-cost ratio of almost thirteen to one!

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