James K. Boyce

What’s rent got to do with climate change? More than you might think.

Rent isn’t just the monthly check that tenants write to landlords. Economists use the term “rent seeking” to mean “using political and economic power to get a larger share of the national pie, rather than to grow the national pie,” in the words of Nobel laureate Joseph Stiglitz, who maintains that such dysfunctional activity has metastasized in the United States alongside deepening inequality.

When rent inspires investment in useful things like housing, it’s productive. The economic pie grows, and the people who pay rent get something in return. When rent leads to investment in unproductive activities, like lobbying to capture wealth without creating it, it’s parasitic. Those who pay get nothing in return.

Two other types of rent originate in nature rather than in human investment. Extractive rent comes from nature as a source of raw materials. The difference between the selling price of crude oil and the cost of pumping it from the ground is an example.

Protective rent comes from nature as a sink for our wastes. In the northeastern states of the U.S., for example, the Regional Greenhouse Gas Initiative requires power plants to buy carbon permits at quarterly auctions. In this way, power companies pay rent to park CO2 emissions in the atmosphere. Similarly, green taxes on pollution now account for more than 5% of government revenue in a number of European countries. When polluters pay to use nature’s sinks, they use them less than when they’re free. Read the rest of this entry »

Robin Broad and John Cavanagh

With the help of Forbes magazine, we and colleagues at the Institute for Policy Studies have been tracking the world’s billionaires and rising inequality the world over for several decades. Just as a drop of water gives us a clue into the chemical composition of the sea, these billionaires offer fascinating clues into the changing face of global power and inequality.

After our initial gawking at the extravagance of this year’s list of 1,426, we looked closer. This list reveals the major power shift in the world today:the decline of the West and the rise of the rest. Gone are the days when U.S. billionaires accounted for over 40 percent of the list, with Western Europe and Japan making up most of the rest. Today, the Asia-Pacific region hosts 386 billionaires, 20 more than all of Europe and Russia combined.

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Arjun Jayadev

Who does it hurt? The IMF on fiscal consolidation

In 2010 Alberto Alesina from Harvard University was celebrate by Business Week for his series of papers on fiscal consolidation. This was ‘his hour’ the article argued. The surprising argument that he and his coauthors made that was that the best way forward for several countries facing debt issues was to undertake “Large, credible and decisive spending cuts”. Such cuts would work to change the expectations of market participants and bring forward investment that was held back by the uncertainty surrounding policies in the recession.

The idea of ‘expansionary austerity’ has failed spectacularly by any account. Martin Wolf’s latest article in the New York Review of Books goes over this, as does Paul Krugman’s earlier piece in the same outlet. In a forthcoming paper written by Josh and I  (which I will blog about later), we argue that austerity succeeded at least in part because of the nature of consensus macroeconomics (by which we mean both New Keynesian and Real Business Cycle approaches).

One paper that I had wanted to write was to discuss the distributional implications of austerity. For many reasons, including those elucidated by Jim Crotty, Josh and Jerry Epstein, austerian policies and should really be seen as class conflict—protecting the interests of the wealthy and attacking those of the poor.

I never got to the empirical tracing out of this argument- but the IMF has. And the abstract really does say it all:

This paper examines the distributional effects of fiscal consolidation. Using episodes of fiscal consolidation for a sample of 17 OECD countries over the period 1978–2009, we find that fiscal consolidation has typically had significant distributional effects by raising inequality, decreasing wage income shares and increasing long-term unemployment. The evidence also suggests that spending-based adjustments have had, on average, larger distributional effects than tax-based adjustments

In other words—it does hurt, and it hurts the relatively poor more. Even more importantly, the claim that spending cuts are ‘better’ for the economy than tax raises as argued by Alesina and some coauthors forgets to ask for whom this is better. The IMF’s answer is that spending cuts are definitely not good for the working class and that advocating spending cuts rather than tax increases imposes distributional costs to those least capable of bearing it.

What a surprise!

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Ilene Grabel

The US Senate’s investigation into the tax avoidance strategies of Apple has helped to cast a light on the very practices that international tax justice activists have highlighted for years (see, e.g., the work of the Tax Justice Network and these videos). Apple’s strategies, which resulted in tax avoidance on the order of several billions of dollars, exemplify the kind of the transfer pricing and other strategies so long perfected by other multinational and large national firms.

The Apple case also highlights the self-defeating nature of the strategies used by states (in this case Ireland) that compete with one another to attract foreign firms by giving them the keys to the Treasury. These corporate giveaways hollow out the state revenue base precisely at a time when tax revenues are falling because of the global recession.  While these lost tax revenues are always costly to states, they are especially costly now that governments in the grips of austerity fervor are slashing social spending when it is most needed. Of course, it is far easier politically to enforce “discipline” by retracting social spending and raising taxes that fall on struggling households and small businesses than on large, footloose and politically powerful corporations.  And then there is the matter that many of these firms are simply taking advantage of the tax rules that governments have created for them, and so it becomes difficult to imagine states going after these same firms.  Nevertheless it bears noting that austerity-induced expenditure cuts might be avoided altogether were states to cooperate on closing tax loopholes and ending race to the bottom forms of international and domestic tax competition.

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Martin Khor

So, the United States at the last minute averted a “fiscal cliff” crisis last week, and the world gave a sigh of relief, since the fate of the US economy has strong impact on other countries.

But that sigh was accompanied by a shake of the head at how this drama involving a contest of wills between the President and the Republicans in Congress has become an American way of life.

Has the economy of the US and the rest of the world economy become too dependent on how Washington’s budget politics plays out?  It seems so, for some time to come.

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