Category: Economics

Richest Rich Use Crony Capitalism to Game Tax System

(p. A1) Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups.
. . .
(p. A12) “There’s this notion that the wealthy use their money to buy politicians; more accurately, it’s that they can buy policy, and specifically, tax policy,” said Jared Bernstein, a senior fellow at the left-leaning Center on Budget and Policy Priorities who served as chief economic adviser to Vice President Joseph R. Biden Jr. “That’s why these egregious loopholes exist, and why it’s so hard to close them.”

The Family Office
Each of the top 400 earners took home, on average, about $336 million in 2012, the latest year for which data is available. If the bulk of that money had been paid out as salary or wages, as it is for the typical American, the tax obligations of those wealthy taxpayers could have more than doubled.
Instead, much of their income came from convoluted partnerships and high-end investment funds. Other earnings accrued in opaque family trusts and foreign shell corporations, beyond the reach of the tax authorities.
The well-paid technicians who devise these arrangements toil away at white-shoe law firms and elite investment banks, as well as a variety of obscure boutiques. But at the fulcrum of the strategizing over how to minimize taxes are so-called family offices, the customized wealth management departments of Americans with hundreds of millions or billions of dollars in assets.
. . .
The major industry group representing private equity funds spends hundreds of thousands of dollars each year lobbying on such issues as “carried interest,” the granddaddy of Wall Street tax loopholes, which makes it possible for fund managers to pay the capital gains rate rather than the higher standard tax rate on a substantial share of their income for running the fund.

For the full story, see:
NOAM SCHEIBER and PATRICIA COHEN. “By Molding Tax System, Wealthiest Save Billions.” The New York Times (Weds., DEC. 30, 2015): A1 & A12.
(Note: bold, and larger font, in original; ellipses added.)
(Note: the online version of the story has the date DEC. 29, 2015, and has the title “For the Wealthiest, a Private Tax System That Saves Them Billions.”)

President Kenyatta Burns Ivory, Raising Its Price, and Increasing the Incentive for Poachers to Kill Elephants

If President Kenyatta wants to save elephants, instead of burning ivory, he should sell it on the open market, moving the supply curve to the right, and lowering the price of ivory. A lower price of ivory would reduce the incentive for poachers to kill elephants.

(p. 10) NAIROBI, Kenya — What do you do when you have more than $100 million worth of ivory sitting around, just collecting dust?
You burn it, of course.
That is what Kenya did on Saturday, when President Uhuru Kenyatta lit a huge pyre of elephant tusks as a way to show the world that Kenya is serious about ending the illegal ivory trade, which is threatening to push wild elephants to extinction.
“No one, and I repeat, no one, has any business in trading in ivory, for this trade means death — the death of our elephants and the death of our natural heritage,” Mr. Kenyatta said.

For the full story, see:
ELLEN BARRY. “A Year Later, Nepal Is Trapped in the Shambles of a Devastating Quake.” The New York Times, First Section (Sun., May 1, 2016): 10.
(Note: ellipses added.)
(Note: the online version of the story has the date APRIL 30, 2016, and has the title “A Year After Earthquake, Nepal’s Recovery Is Just Beginning.”)

“Robots Take Away Subhuman Jobs”

(p. A21) Joseph F. Engelberger, a visionary engineer and entrepreneur who was at the forefront of the robotics revolution, building robots for use on assembly lines and fostering another, named Seymour, to handle chores in hospitals, died on Tuesday [December 1, 2015] in Newtown, Conn. . . .
. . .
Mr. Engelberger was a force in robotics from its early days, in the 1960s, when his company, Unimation, in Danbury, Conn., developed the Unimate, a robotic arm that would greatly accelerate industrial production lines.
. . .
Labor unions and some corporate managers resisted robotics at first, worrying, as Mr. Engelberger later put it, “that the robots can take all the jobs away.”
He disagreed with that notion.
“It’s unjustified,” he told The New York Times in 1997. “The robots take away subhuman jobs which we assign to people.”
Unimate proved to be more precise than the human hand in completing some repetitive and dangerous tasks. Automobile makers employed the arm to weld and move vehicle parts, apply adhesives to windshields and spray-paint car bodies — jobs that had posed chemical hazards to workers.

For the full obituary, see:
JEREMY PEARCE. “Joseph F. Engelberger, a Leader of the Robot Revolution, Dies at 90.” The New York Times (Thurs., DEC. 3, 2015): A33.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the obituary has the date DEC. 2, 2015, and has the title “Joseph F. Engelberger, a Leader of the Robot Revolution, Dies at 90.”)

Perfect Reliability Is Not Worth the Cost

(p. B4) Say what you will about Plain Old Telephone Service, but it worked. The functionality of POTS, as it was known, was limited to making calls, and they were expensive. But many traditional phone companies offered 99.999% reliability, which allowed for about five minutes of downtime a year.
Today’s networks are far less expensive, infinitely more capable and nowhere near as reliable as the wired-to-the-wall phone, . . .
. . .
To some extent, contemporary networks suffer from inattention. The old phone system worked so well because regulators in certain countries like the U.S. said it had to, and enough money was set aside to fund an army of technicians and engineers to oversee it. That generally isn’t the case with modern, digital networks and IT infrastructure, and companies often neglect this nuts-and-bolts technology.
. . .
Underneath it all, the economics of falling prices carry a trade-off. Consumers get more for their money in the mobile, digital era, but that often leaves margin-stretched companies with fewer resources to invest in robustness and maintenance. Reliability is as much a function of business and risk management as it is about tech.
“I don’t know if people are sweating that detail as much as they used to,” said Mr. Bayer, previously CIO of the Securities and Exchange Commission.
. . .
Former NYSE Euronext Chief Operating Officer Lawrence Leibowitz told the Journal in 2013 the public shouldn’t expect market technology to function perfectly, a goal that would be too expensive to implement even if it were technically feasible.

For the full story, see:
STEVE ROSENBUSH and STEVEN NORTON. “Network Reliability, a Relic of Business?” The Wall Street Journal (Fri., July 10, 2015): B4.
(Note: ellipses added.)
(Note: the online version of the story has the date July 9, 2015 and has the title “What We Learned From the NYSE, United Airlines Tech Outages.”)

Taxpayer Funded Stadiums Fail to Bring Promised Economic Development

(p. C14) The Twin Cities of Minneapolis and St. Paul have been an epicenter of the U.S. stadium-and-arena boom, rolling out five major sports facilities since 1990 that together cost more than $2 billion.
Now, the neighboring cities are readying for a sixth: a 20,000-seat, $150 million Major League Soccer stadium to be built by 2018 in St. Paul about halfway between the two downtowns.
. . .
But taken with the other facilities that have a combined seat count of nearly 200,000, this latest project illustrates how the Twin Cities are an acute example of the rapid increase in stadiums and arenas in U.S. cities. These developments come despite a growing chorus of warnings from economists who say the stadiums are almost always poor drivers of economic development. Even when these facilities do spur nearby investment, economists and critics say the cost to the public is typically far higher than with traditional economic-development programs.
“I’ve lived in the Twin Cities since 1976, and have seen this proliferation of new sports stadia,” said Jane Prince, a St. Paul city council member who voted against the soccer stadium aid package. “I just don’t see the promised economic development occurring in conjunction with all of these.”
. . .
“There’s not one group that makes these decisions–it was two city governments, it was a legislature, it was sports owners,” said R.T. Rybak, the mayor of Minneapolis from 2002 to 2014. Mr. Rybak said he had long been critical of sports subsidies but he grudgingly helped craft the aid package for the Vikings stadium after the team was poised to move elsewhere.
That deal, and the others, he said, were “also driven by the increasingly crazy politics of sports economics,” in which teams want their own facilities, custom designed for their ideal crowd sizes.

For the full story, see:
ELIOT BROWN. “Twin Cities to Get Yet Another Stadium.” The Wall Street Journal (Weds., March 23, 2016): C14.
(Note: ellipses added.)
(Note: the online version of the story has the date March 22, 2016, and has the title “In Twin Cities, How Many Stadiums Are Enough?”)

Workers Gain Slightly Larger Percent of GDP

WorkerCompensationGraph2016-05-27.jpgSource of graph: online version of the NYT article quoted and cited below.

(p. B1) American workers are reaping fewer of the gains of a growing economy in the form of pay and benefits. Shareholders are reaping more in the form of corporate profits. That shift has been one of the most important economic stories of the last several decades, and it is the key to understanding stagnant wages for middle-class workers and a soaring stock market in the last quarter-century.

Here is what is less widely understood: That trend appears to be reversing itself.
It is early and the reversal may not last. And it certainly hasn’t fully undone the shift underway since the 1980s. But the numbers are quite clear that in the last couple of years workers have claimed a bigger piece of the economic pie and shareholders a smaller one.
The evidence available so far in 2016 — steady growth in wages and weak earnings for publicly traded companies — suggests that the reversal is continuing this year.

For the full story, see:
Neil Irwin. “The Upshot; Workers Are Getting a Bit More of the Economic Pie.” The New York Times (Fri., MAY 6, 2016): B1 & B9.
(Note: the online version of the story has the date MAY 3, 2016, and has the title “The Upshot; Workers Are Getting a Bit More of the Economic Pie (and Shareholders Less).”)

Feds Spend Over $500 Million to Aid Barges Shipping Coal

(p. B1) CHARLEROI, Pa.–A few years ago, coal barges lined up 20 or 30 deep, waiting their turn for a towboat to shuttle them through the locks near this town along the Monongahela River.
These days it is the towboats that often sit idle. Cheap natural gas, stricter power-plant-emissions rules and a weak steel market have gutted coal demand, and with it traffic on the rivers that have served as the industry’s commercial arteries for over a century.
Nevertheless, river infrastructure is about to be flooded with federal cash. In December, Congress authorized $405 million to improve river locks and dams over the next fiscal year, the most since 2008.
The money follows a multimillion-dollar lobbying effort spearheaded by the Waterways Council Inc., which represents an array of companies including coal producer Murray Energy Corp., utility FirstEnergy Corp., agricultural-commodities trader Cargill Inc. and Marathon Petroleum Corp.
. . .
“It’s kind of ironic–we’re spending even more to update and modernize this system when the value and volume of the commodities is diminishing, and coal is something that we as a country are moving away from,” said Steve Ellis, vice president of Taxpayers for Common Sense, a conservative-leaning advocacy group that analyzes infrastructure spending.

For the full story, see:
ROBBIE WHELAN. “Barges Get a Boost, Even as Demand Sinks.” The Wall Street Journal (Thurs., Feb. 4, 2016): B1 & B7.
(Note: ellipsis added.)
(Note: the online version of the story has the date Feb. 2, 2016, and has the title “U.S. Opens Spigot for Lock-and-Dam Fixes, Even as Coal Traffic Dwindles.”)

Steady-State Stagnation Is Not an Option

Some environmentalists advocate an end to economic growth. Inside economics, and in the broader world, a heated debate has considered whether an economy can long stagnate in a steady-state. The idea that it can, is captured in the circular flow diagram that has been a fixture of many introductory economics textbooks for many decades. I argue that without the dynamism that is achieved by innovative entrepreneurs, long-term stagnation is not an option. Exogenous events, such as earthquakes, will always come along to disturb the steady-state. And when they do, only entrepreneurs can restore the steady-state. If there are no entrepreneurs, there will be decline. If there are entrepreneurs, they will not stop at the steady-state; they will seek progress. The choice is forward or backward. Long-term steady-state stagnation is not an option.

(p. 10) SANKHU, Nepal — As the anniversary of Nepal’s devastating earthquake came and went last week, Tilakmananda Bajracharya peered up at the mountainside temple his family has tended for 13 generations, wondering how long it would remain upright.

. . .
Many people here pin their hopes on promises of foreign aid: After the disaster, images of collapsed temples and stoic villagers in a sea of rubble were beamed around the world, and donors came forward with pledges of $4.1 billion in foreign grants and soft loans.
But those promises, so far, have not done much to speed the progress of Nepal’s reconstruction effort. Outside Kathmandu, the capital, many towns and villages remain choked with rubble, as if the earthquake had happened yesterday. The government, hampered by red tape and political turmoil, has only begun to approve projects. Nearly all of the pledged funds remain in the hands of the donors, unused.
The delay is misery for the 770,000 households awaiting a promised subsidy to rebuild their homes. Because a yearly stretch of bad weather begins in June, large-scale rebuilding is unlikely to begin before early 2017, consigning families to a second monsoon season and a second winter in leaky shelters made of zinc sheeting.
. . .
. . . , some visitors who came here to assess the reconstruction expressed shock at how little had been done.
. . .
“It has been a horrible year,” said Anju Shrestha, 36, whose shed stands on a site that once held a three-story brick house.
A neighbor, Kanchhi Shrestha, guessed her age at about 75, based on a major earthquake that occurred two years before she was born. She pulled her skirt up to show feet splotchy with raw sores.
“I will die in this shelter if they do not give me money,” she said. “I have nothing to eat.”
However, she added, it would be inappropriate for a person like her to demand assistance from Nepal’s government.
“We cannot scold the government,” she said. “If the government provides, we will fold our hands and tell them, ‘You are God.’ “

For the full story, see:
ELLEN BARRY. “A Year Later, Nepal Is Trapped in the Shambles of a Devastating Quake.” The New York Times, First Section (Sun., May 1, 2016): 10.
(Note: ellipses added.)
(Note: the online version of the story has the date APRIL 30, 2016, and has the title “A Year After Earthquake, Nepal’s Recovery Is Just Beginning.”)

Plastic Buttons Replaced Seashell Buttons, but Technology Can Be Restored

In What Technology Wants, Kevin Kelly has made the point that most obsolete technologies remain available to satisfy nostalgia, or for more practical uses, if the need arises. Below is another example.

(p. C27) In a tan outbuilding overlooking a pond in northeastern Connecticut, equipment for turning seashells into buttons has lain fallow for nearly eight decades. The building’s owner, Mark Masinda, a retired university administrator, is working to transform the site into a tourist attraction.

In the early 1900s, his grandfather William Masinda, a Czech immigrant, supervised a dozen button makers in the building, which is on a rural road in Willington. They cut, drilled and polished bits of shells imported from Africa and Australia to make “ocean pearl buttons” with two or four holes. The area’s half-dozen button factories supplemented the incomes of families struggling to farm on rocky terrain.
The Masinda operation closed in 1938, as plastic flooded the market. “The equipment he had just couldn’t make the transition,” Mr. Masinda said.
. . .
Mr. Masinda is planning to reactivate the equipment and open the site for tours by . . . spring [2016].

For the full story, see:
EVE M. KAHN. “Antiques; Restoring a Button Factory.” The New York Times (Thurs., DEC. 3, 2015): C27.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the story has the date DEC. 3, 2015, and has the title “Antiques; Yale Buys Collection of Scattered Medieval Pages; Restoring a Button Factory.”)

The Kelly book mentioned above, is:
Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.

Basic Goods Unavailable in Socialist Venezuela

(p. 5) I used to laugh when I heard that reporters were headed to Caracas with their own deodorant. I thought they were just being fussy.
Then came my turn.
I brought Old Spice. For detergent, I brought a ton of Tide. That’s one of my bags above, and all the other essentials that came along: two nasal spray bottles, three tubes of toothpaste, one package of floss, a bottle of body wash, shaving cream, contact lens solution, AA batteries, sponges, detergent, toilet paper and a big bottle of ibuprofen. Two bottles of Scotch.
If a selfie in the airport is a rite of passage for those leaving Venezuela, a preflight run to the supermarket to fill a suitcase with basic goods is the ritual for those arriving here.
Since the economy fell into deep collapse in 2015, some things just aren’t sold here. Other items — like toilet paper — are on the black market but can be tricky to find.
My friend Girish has been making these trips for the last five years. I asked him before moving here what to pack, besides toilet paper.
He responded, via text: “Medicine. First Aid stuff. Spices/other food you like. Kindle (as books aren’t so easy to get here), shampoos/toiletries etc if you like something specific…”
Like some people here, Girish brings enough to get him through a month or so. Then he makes a pit stop in Colombia to fill up the cabinet again.
But most people in Venezuela can’t leave and have to make do with whatever they can find.

For the full story, see:
NICHOLAS CASEY. “Settling Into Venezuela, a Land in Turmoil.” The New York Times, First Section (Sun., Jan. 24, 2016): 5 & 9.
(Note: ellipsis added.)
(Note: the online version of the story has the date January 5 [sic], 2016, and has the title “Moving to Venezuela, a Land in Turmoil.”)

Tesla Direct Sales Thwarted by Laws that Protect Dealers Instead of Consumers

(p. B3) Tesla Motors Inc. hopes to capture mainstream auto buyers with its Model 3, an electric car it plans to unveil this week at a price about the same as the average gasoline-powered vehicle, but it may need a federal court ruling to succeed.
The Palo Alto, Calif., auto maker’s direct-to-consumer sales are prohibited by law in six states that represent about 18% of the U.S. new-car market. Barring a change of heart by those states, Tesla is preparing to make a federal case out of the direct-sales bans.
The auto maker’s legal staff has been studying a 2013 federal appeals court ruling in New Orleans that determined St. Joseph Abbey could sell monk-made coffins to customers without having a funeral director’s license. The case emerged amid a casket shortage after Hurricane Katrina. The abbey had tried to sell coffins, only to find state laws restricted such sales to those licensed by the Louisiana Board of Funeral Directors.
For now, Tesla is banking on a combination of new legislation, pending dealer applications and other factors to open doors to selling directly in Arizona, Michigan, Texas, Connecticut, Utah and West Virginia. But the company said it is ready to argue in federal court using the coffin case if necessary.
“It is widely accepted that laws that have a protectionist motivation or effect are not proper,” Todd Maron, the auto maker’s chief counsel, said in an interview. “Tesla is committed to not being foreclosed from operating in the states it desires to operate in, and all options are on the table.”
. . .
“There is no legitimate competitive interest in having consumers purchase cars through an independent dealership,” Greg Reed, an attorney with Washington D.C.-based Institute for Justice, a libertarian-leaning law firm, said. He calls Michigan’s laws “anti-competitive protectionism.”

For the full story, see:
MIKE RAMSEY. “Tesla Weighs Legal Fight.” The Wall Street Journal (Tues., March 29, 2016): B3.
(Note: ellipsis added.)
(Note: the online version of the story has the date March 28, 2016, and has the title “Tesla Weighs New Challenge to State Direct-Sales Bans.”)