Monday, August 29, 2016

Question for Labor Day, 2016

" is often said that to regulate the hours of labour, or to introduce differential import duties, is to break economic law." -- Palgrave's Dictionary of Political Economy, 1894
Do you agree that regulating the hours of labor is a violation of economic law?

Friday, August 26, 2016

Trigger Warnings and Academic Freedom

The top brass at the University of Chicago are so, so wrong about trigger warnings.  I don’t know how other instructors use them, but for me they provide the opportunity to bring disturbing material to my students.  I have used them for graphic films about child soldiers and prostitutes, for instance, hoping to provide a missing dimension to the social science readings I assign on these topics.  I would never be able to do this unless I allowed the most vulnerable students to excuse themselves.  In the absence of trigger warnings, and out of respect for the needs of these students, I would not be able to use this material at all.

The core intellectual error in the UC statement is that it implicitly assumes that the extent to which academic content is challenging is fixed.  It’s not.  It’s a product of the flexibility we have in the classroom to introduce it.

Wednesday, August 24, 2016

The Infrastructure Investment Debate

While Noah Smith makes the standard case for public infrastructure spending, he only lightly touches on the right wing critiques:
Some question the need for road and bridge repair. Others deny the need for federal infrastructure spending in the first place. Still others claim that while spending is good in theory, the U.S.’s high infrastructure costs mean we should hold off until those costs can be brought down.
This last line left me speechless as real borrowing costs are incredibly low right now and with a continuing weak economy, one would think this is a great time to hire construction workers. We will turn to material costs later. Noah links to Adam Millsap of George Mason:
In inflation adjusted dollars (the top panel) infrastructure spending has exhibited a positive trend and was higher on average post 1992 after the completion of the interstate highway system...The bottom panel shows that spending as a % of GDP has declined since the early 80s, but it has never been very high, topping out at approximately 6% in 1965. Since the top panel shows an increase in the level of spending, the decline relative to GDP is due to the government increasing spending in other areas over this time period, not cutting spending on infrastructure... Another interesting thing that jumps out is that state and local governments provide the bulk of infrastructure spending.
Adam’s source is the 2015 CBO analysis, which confirms this last claim:
Public spending—spending by federal, state, and local governments—on transportation and water infrastructure totaled $416 billion in 2014. Most of that spending came from state and local governments: They provided $320 billion, and the federal government accounted for $96 billion.
Alas Adam choose to omit the rest of the summary which also notes:
In 2003, the average price of materials (asphalt, concrete, and cement, for example) and other inputs used to build, operate, and maintain transportation and water infrastructure began to rise rapidly. Nominal public spending on that infrastructure increased by 44 percent between 2003 and 2014, but because prices of materials and other inputs rose more quickly than nominal spending, real (inflation-adjusted) public purchases decreased, falling by 9 percent from their peak in 2003 to their level in 2014 (see the figure on page 2)...The decline in real public spending (adjusted using infrastructure-specific price indexes) on transportation and water infrastructure between 2003 and 2014 occurred almost exclusively within the category of capital purchases, which fell by 23 percent during those years. The construction and rehabilitation of highways, in particular, declined over the period. By contrast, real public spending for the operation and maintenance of infrastructure continued its historical tendency to grow, rising by about 6 percent over that period, primarily because of increases at the state and local level.
The debate is over the lack of capital spending – not the cost of ongoing operations. I have a hard time believing that Adam missed this point even as he choose not to note it to his readers. Incidentally, if material costs are way up do we have any reason to believe that they will dramatically fall? I’ll provide links to the FRED series on two price indices - asphalt and cement. Both nominal price indices rose from 2003 to 2009 as China was undergoing its own construction boom. While the Great Recession moderated these increases for now – I seriously doubt either commodity will ever see the relative prices observed before the commodity boom. Now is the right time for infrastructure investment.

James Galbraith Resigns As Chair Of Economists For Peace And Security

After serving for 20 years, James K. Galbraith is stepping down as Director of Economists for Peace and Security (EPS), an important group in my view that he has built up during his time as its leader.  I know that is a long time, so I understand that perhaps the time has come.  However, his shoes will  be hard to  fill.  He originally succeeded Kenneth Arrow (who just turned 95) and the late Lawrence Klein, who co-founded the organization and served as co-chairs.  Other Nobelists who are Fellows or Board members include Amartya Sen, Daniel McFadden, George Akerlof, Joseph Stiglitz, Eric Maskin, Roger Myerson, and Thomas Schelling.  I hope that a suitable successor for Galbraith will be found.

Barkley Rosser

Tuesday, August 23, 2016

Amnesia, Automation and Job Loss

I would say that when technology is contributing to greater inequality of incomes, as it  seems to be doing in recent decades, then address the inequality directly. -- Timothy Taylor
Having lived through "recent decades" (along with a couple of less recent decades) I can't imagine how Timothy Taylor can blame greater inequality of incomes on technology and then go on to talk about addressing inequality directly through public policy.

Whether or not it was the intention of public policies, greater income inequality has been a direct outcome of  those policies. As a matter of fact, increasing income inequality wasn't a stated objective of the policies. The stated objectives were promoting economic growth and controlling inflation. That was supposed to make everybody better off. Technology is just an alibi for what went wrong.

Is Timothy Taylor against economic growth? Does he favor accelerating inflation? If not, how does he propose to design public policies to somehow counteract the presumably unintended inequality effects of the policies that inadvertently brought about those outcomes, while simultaneously continuing those policies and pretending that some vague "technology" was the culprit for the undesired effects? I think he's got himself a bit of a dilemma there.

Might I suggest that his narrative doesn't jibe with itself? We already have "corporatist public policy" in a form that insulates elite decision making from democratic oversight or input. How we transition from that to something better is a mystery to me but I'm pretty sure that the solution is not to pretend that individuals' insatiable desires are what ultimately determine the mixture of leisure and income. Especially after three decades of stagnant incomes for wage earners. I remember the promises made in the 1950s, 60s and 70s. Those promises were broken. Nobody believes them any more.

What people do believe is not necessarily true, either. But it conforms to their experience. Given a choice between abstractions that have been discredited by experience and illusions that validate that experience, most people will choose the illusions. Hello, Rough Beast, slouching toward Bethlehem.

The "reduction of the average work week in manufacturing from 67 hours in 1870 to somewhat less than 42 hours" that Leontief cited, quoted by Taylor, was not just something that "happened" as a result of individuals choosing to take more of the fruits of their increased productivity in leisure. It was the outcome of political struggle that was viciously opposed at every step along the way. At. Every. Step. The compromising and subsequent defeat of the labor movement that fought for shorter hours is not unrelated to the subsequent increase of income inequality over recent decades.

In the view of some economists, such as Milton Friedman, labor unions were a parasitic impediment on the smooth functioning of free markets. Free to choose entailed a "right-to-work," in the Taft-Hartley sense. Hooray! The debilitating leisure is all gone; we can bask obesely in our insatiable glut of shoddy goods and huckster services. Climate change? What... [glug, glug, glug]

Economists are all too modest when they act surprised at the ill effects resulting from policies that they had insisted would make everyone better off. "If only they had listened to us," they moan.

Oh, but the leaders did listen. And they did what their economists told them to.

By the way, the analysis and arguments put forward by advocates during that long struggle for shorter working time are very relevant to some of the most seemingly intractable policy dilemmas that we face today. And no, they weren't based on a false belief in a fixed amount of work. Unfortunately, the actual views have been so slandered and sidetracked by the propaganda that economists would rather contemplate the lint in their own belly button than marginalize themselves by engaging with these "fringe" ideas in an ethical debate.

Monday, August 22, 2016

It Is Monday And The Washington Post Wants To Cut Social Security Benefits (Again)

To  be more specific, Robert J. Samuelson on the editorial page, and I am posting this because for some reason Dean Baker did not post about this, perhaps bored with yet another round of WaPo and its columnists doing the same old same old over and over again, especially on Mondays.  This one draws on a new study of the impact of aging on economic growth, specifically per capita growth, using US states as the data sources by Nicole Maestas, Kathleen Mullen, and David Powell, the first in the Harvard Medical School and the latter two at the RAND Corporation.  A main finding is that a 10% increase in the percent of a state population that is over 60 implies a 5.5% decline in real per  capital income growth.  They find a third of this due to fewer workers, but the other  two thirds due to  unexplained productivity changes, with RJS recognizing that the paper does not provide completely convincing explanations for this, although there are some, such as that the retirement of older workers with their experience reduces  the productivity of those left behind still working.

Of course, when it comes to the end of the column Samuelson does that old Monday WaPo thing, dragging out Social Security as a big problem. Now indeed, it is certainly the case that anything that damages future economic growth damages the future status of Social Security, although apparently this paper has nothing to say about this, and Samuelson does not provide any specific estimates.  But this does not hold him back from the following: "As a society, we need a better  balanceof  obligation between the older and younger generations.  Until now, policy has favored the elderly.  The remedies to shift the balance are well-known: higher eligibility ages for government benefits; less generous benefits and tax breaks for wealthier retirees. None is politically easy." 

Yes,  that was it, the complete list of possible ways of  dealing with this problem. Should we increase aid to  students going to college or making moves to reduce college tuitions that might help the younger generation?  Nope, not a word.  How about increased aid for poor children?  Nope, not a word.  Medicare was not mentioned,which Dean Baker has regularly pointed out has much more rapidly rising costs than Social Security and helps the old, but as he has regularly also noted, most of that is due to  the continuance of medical care costs rising more rapidly than inflation, just as college tuitions have been.  No suggestion from Samuelson that any effort to try to  restrain these increases might help with this problem.  No, it was all about messing with Social  Security, although for once he did mention tax changes, not a general tax increase, but one maybe just directed at the wealthy, not recognizing that this could undermine future support for the program.

I have not read the paper, only its abstract, but at least one issue appears to me as possibly contributing to the large effects that the authors of this study find that RJS does not note  This is that it might be that they have not accounted for the fact that migration of the young is very responsive to job availability.   So, if a state has more rapid per capita growth than another one, and thus more rapid job growth, it will see younger people moving into it and out of the other one, at least relative to each other.  So, a more rapidly growing state will tend to end up with a lower percentage of elderly than a slower one, without any of this needing to be due to the rise in the percentage of elderly themselves.  This is certainly what is going on in say West Virginia, which has one of the highest percentages of elderly in the country.  Now it may be that they do not want to pay for schools, which may be damaging long run growth, but it is obvious that the main thing going on there is that with the collapse of the coal mining industry, younger people have moved out of the state leaving the old behind, not that some rise in the numbers of  old people drove the coal mining industry out of the state.  However, I must grant that it is possible that they have somehow accounted for this sort of endogeneity effect.

In any case, even if the study has completely covered for all of these sorts of issues, it is completely unsurprising that Samuelson on a Monday somehow sees the only thing that should be done in the face of this supposedly negative effect of the elderly on growth is to cut Social Security benefits.

Barkley Rosser

Sunday, August 21, 2016

He Said, She Said on Charter Schools and the Black Community in the New York Times

Today we get another sad example of “objective” journalism, where advocates from opposing sides of an issue are given a platform to face off—without any independent investigation of the underlying merits.  In particular, the possibility that one point of view may just be the public face of a wad of cash is not considered.

So we have a “controversy” piece in the New York Times about black attitudes toward charter schools, the NAACP and the Movement for Black Lives (whose platform really deserves your attention) against and the Black Alliance for Educational Options for.  The Times hands the pro-charter mike over to Howard Fuller of BAEO, naming his organization and identifying him only as a professor at Marquette University.

Anyone who knows anything about the education “reform” “movement” anticipates there will be more to the story, and there is.  See this revealing piece on Fuller and BAEO by Julian Vasquez Heilig of CSU, Sacramento.  (Hat tip: Diane Ravitch.)  Sure enough, there’s seed money from right wing foundations (Bradley, Milton and Rose Friedman) and continuing sugar from Walton and Gates.  In fact, Fuller started out pushing vouchers and only gravitated to charters as the movement (and money) against public education shifted from far right to near right.  Heilig gives a nice example of a BAEO “survey” that is actually a thinly disguised propaganda effort.

Here’s the thing: I, who am just a casual follower of K-12 education politics, found all this in about five minutes.  Maybe a Times reporter could do the same.

Thursday, August 18, 2016

Women New School Econ PhDs Hit The Big Time

Dr. Stephanie Bell Kelton served as the top economic adviser of Bernie Sanders.  She has apparently recently returned to her old position in the economics department at the University of Missouri-Kansas City.

It has now been announced that Dr. Heather Boushey will serve as Chief Economist for the Hillary Clinton transition team, assuming that she wins the forthcoming presidential election.  She has been the Director of the Center for Equitable Growth in Washington.

I note that both of them received their economics PhDs from the New School for Social Research economics department in New York City.  Looks like women coming out of that department have been hitting the poliltical big time recently.  Congratulations to both of them as well as the New School economics department.

Barkley Rosser

Tuesday, August 16, 2016

Hillary Clinton’s “Outrun You” Strategy

There’s an old joke among hikers; maybe some of you couch potatoes have heard it too.  Two guys are out on the trail when they suddenly cross paths with a grizzly.  The bear rears up and prepares to charge.  Hiker A turns to Hiker B and says, “Quick!  My running shoes are in your pack.  I need them!”  Says B: “Don’t be stupid.  You can’t outrun a bear!”  Replies A: “I don’t need to outrun the bear—I just need to outrun you.”

Which is entirely doable if your fellow hiker is Donald Trump.

Monday, August 15, 2016

Obama, Schelling, And No First Use Of Nuclear Weapons

Funny thing. Here I have been blogging here recently, , about how Thomas Schelling's idea of  focal points fit in to discussions about No First Use (NFU) of nuclear weapons policies.  Then today in both the New York Times ("End the First-Use Policy for  Nuclear Weapons" by James E. Cartwright and Bruce G. Blair) and the Washington Post ("Allies unite to block an Obama 'legacy'" by Josh Rogin) columns appeared about an ongoing debate within the Obama administration over precisely this issue, a debate I did not know was going on.  Apparently President Obama is seriously contemplating changing the official US policy that allows for a possible first use of nuclear weapons under several possible conditions to one of No First Use, with an announcement of this to coincide with his last visit to the UN General Assembly in late September. Interestingly, the two columns took opposite positions, the Cartwright-Blair one supporting the initiative while the Rogin ends up opposing it.

Cartwright and Blair, who both have past  experience nuclear weapons military policy, argue that this would be a move towards world peace, would save $100 billion over a decade, and that the US has sufficient conventional strength that nukes are not needed for such sensitive places as Korea. The policy would involve eliminating the tactical nukes in Europe, which should relax Russia somewhat, as well as the land-based ICBMs in the US, with both of these the least secure and the ones that are most likely to be launched suddenly by lower level officials.  The number of US warheads would go to 1000 from its current 1550, with bomber and submarine based launchpads still in place.  As it is, both China and India (and curiously, North Korea, although Kim Jong Un has recently talked of thermonuclearly wiping out New York City) have such NFU policies, while the remaining nuclear powers do not.

Rogin dismisses this effort as merely something Obama wants for his "legacy," suggesting it might make war more likely. Apparently several US allies oppose this initiative, including both UK and France who  do  not have NFU policies and think it would undermine their policies and their positions on the UN Security Council.  Offhand, I do not see the basis for this argument by them.  The other two nations not so keen on this are Japan and South Korea, with Abe of Japan supposedly the most vociferous about needing a nuclear defense against North Korea, even though a nuclear attack there would send nuclear fallout to Japan.Rogin, who has no past expertise in this area, accepts these arguments and effectively sees all this as just some dangerous grandstanding by Obama.  Also, according to him, the objections by these allies are getting traction and may carry the day in the end. I think that would be too bad.

I would like to bring out a bit more  from the arguments by Schelling regarding this, highlighting his Nobel Prize address, which appeared in the AER in 2006, "An Astonishing 60 Years: The Legacy of Hiroshima." (I have tried to link to this, but unsuccessfully, but googling the title will give you access).  I  have spoken of Schelling's modesty, and in the lecture he says nothing about his own role or the idea of focal points.  Rather he noted that while official policy among the leading nuclear powers never involved No First Use, from a very early time the norm emerged due to the moral  revulsion against nuclear weapons, as early even as 1953.  He recounts that some in the Eisenhower administration wanted to use nuclear weapons in various places, most especially Secretary of State, John Foster Dulles, but Dulles and his allies were frustrated at the resistance they encountered.  It is not  in his talk, but in 1961 when Schelling oversaw war games for Europe at Camp David, those playing on each side simply refused to use nuclear weapons, even though official  policy of  both the US and USSR was that a European war would be a nuclear war.

Schelling argues (and obviously he was a force for  this)  that during the Kennedy-Johnson years, Defense Secretary MacNamara argued that the US should build up its conventional  forces in Europe precisely so  that there would be a non-nuclear option.  Schelling argues that this was understood implicitly and tacitly by the Soviets, and that they did likewise.  In short, both sides engaged in lots of expenditure of resources in order to develop  the non-nuclear alternative, and he notes that in both Vietnam and Afghanistan, where these great nuclear powers lost, neither used  nuclear weapons against a non-nuclear adversary, although the late Curtis E. LeMay urged it in the US.

Schelling emphasized how important it was that these understandings were tacit, implicit, but nonetheless very real.  Part of enforcing the norm, even as it was not part of official policy, was simply not to talk about it.  This is a main reason why the cheap talk by first some around Putin and now US presidential candidate Trump are so disturbing.  They really do undermine the norm, as I have noted in my earlier posts.  And it may be because of this undermining by these irresponsible parties that we so seriously now need an explicit No First Use pledge by the US, to make explicit what  has been implicit, and to shut these irresponsible nuclear warmongers up.

BTW, I doubt that Schelling has been personally involved in these current debates within the administration or that he will make any public statement about this matter (although I hope he will say something about it when he speaks at James Madison University on Sept. 14).  But I have no doubt that his work in his Nobel Prize address as well as his earlier Strategy of Conflict that sat on JFK's bedside table during the Cuban missile crisis have played an important part in the thinking of  those advocating this change of  US policy.

Barkley Rosser

Friday, August 12, 2016

Cheap Talk And Nuclear War

This is a followup of my recent post here, .  That discussed Thomas Schelling's role in developing the "no first use of nuclear weapons" policy over several decades in the late 20th century related to his Nobel-Prize winning idea of focal points.  Now I shall be more precise about who and what and how this norm he played such an important role in establishing is breaking down.

Staying within the game theory framework that Schelling operated within, the problem we face now is "cheap talk."  This term entered formal game theory discussions in a paper in 1982 in Econometrica by Vince Crawford and P. Sobel, "Strategic Information Transmission."  They characterized this as involving 1) being costless,2) non-binding, and 3) unverifiable. The large literature on this since their paper  has made it clear that details matter, and that there are many special cases and variations regarding cheap talk and how it can affect real outcomes, which, it is certainly clear it can.  Cheap talk can undermine an established game theoretic equilibrium in a world where there are multiple such equilibria, and an agreement such as Schelling's old "meet under the clock at Grand Central Station" focal point can be undermined by cheap  talk about, "well, maybe we should meet under the clock at Penn Station instead."  Yeah, maybe instead of the norm of no first use of nuclear weapons, we should entertain the possibility of doing so almost randomly if  other nations annoy the heck out of us.

So indeed, as I noted in the earlier post, the origin of cheap talk undermining Schelling's hard to establish norm of no first use of nuclear  weapons came from Russians surrounding Vladimir Putin in March 2014 at the time of the imposition of economic sanctions by the US and EU over his annexation of Krim in violation of  Russia's signing on to the 1994 Budapest Accords that guaranteed the territorial integrity of Ukraine in response to Urkaine giving Russia its pretty numerous nuclear weapons, with the US and UK signing on also, neither of which did anything military when Russia under Putin violated this accord by its annexation of  Krim (Crimea).

The first to  engage in such cheap  talk was Dmitry Kiselev, appointed by Putin to run Russia Today (now  RT) and some other media.  In March 2014 during the annexation fuss, he reminded the world that Russia could turn the US into "radioactive ash."  Not too long after a young military leader, Aleksey Gudovshnikov on Govorit Moskva made fun or worrying about nuclear war, "Why are we so afraid of nuclear war?" noting that both Hiroshima and Nagasaki involved fewer deaths than the fire bombing of Dresden, which is true, but all this was before the invention of the to-this-day-never- deployed and far more destructive H-bomb.  This sort of talk has become quite common on various Russian media outlets in the last two years, very cheap talk indeed. ("Russian media learn to love the bomb" 2/23/15, ).  Putin has never uttered a single word suggesting that these individuals, all of them his appointees, have overdone their public remarks.

So here we are now, with many on both the right and left in the US saying that Putin is a good guy who must be taken very very seriously, not to mention his pal in the US  adding to the cheap talk in various ways, both questioning repeatedly why we cannot just use those nukes we have whenever we feel like it, as well as approving nuclear proliferation to such nations as Japan and South Korea (Um would either China or Russia  be too keen on either of those proliferations?  But, oh, this was probaby just  "sarcasm," not recognized as such by the evil MSM).

I note another point some have raised in this debate:which nations have actually publicly supported the Schelling focal point of no first use  of  nuclear weapons.  The list is short, including India and North Korea, whose leader was recently talking about nuking New York City.

What is clear is that on the official list the big nuclear powers: US, Russia, China; list themselves as possibly using nukes for defensive purposes, no public adherence to the Schelling no-first-use norm.  But this has been for decades a discrete matter, with the signal given that nobody talks about it, no talk cheap or expensive to enforce the norm.  It has been a good 40 years since anybody serious in the US (Air Force General Curtis E.LeMay the last) has spoken in such terms.  But if one returns to the 1950s one finds very serious people using the Prisoner's Dilemma model of game theory to argue for a first strike, most famously the late John von Neumann, who declared "If it is wise to strike tomorrow [the former Soviet Union], then why not today at 5 o'clock, and if not at 5, then why not at 1 PM?"  As it was, von Neumann's great rival in those debates, Tom Schelling, won the day then.

 Barkley Rosser

Barkley Rosser

Wednesday, August 10, 2016

The Man Who Saved The World From Nuclear Holocaust During The Cold War

That would be Thomas C. Schelling, now age 95, whom the late Paul Samuelson once stated that Tom was the most intelligent person he ever met, presumably beating out John von Neumann, whom Samuelson argued with about cigars and general equilibrium theory, and his relative by marriage, Kenneth Arrow, a few months younger than Schelling, who is generally viewed as by far the most respected living economist, and who was a coauthor of the most famous and influential paper on the conditions for the existence of general equilibrium.  But Samuelson thought Schelling was ultimately smarter than either of them. After all, he got his Nobel in game theory in 2005 with Robert Aumann for his 1960 book, The Strategy of Conflict, which was by all accounts on the bedside table of JFK during the Cuban missile crisis, and Schelling, a technical adviser on the 1964 film, "Dr. Strangelove," was reportedly the main driving force behind establishing a secure "hot line" between the US president and the Soviet leader. 

But indeed there is more to this, including exactly why Schelling was given the Nobel Prize, which does come from arguments made in his 1960 book. So not long after Nash provided his game theoretic equilibrium, arguably more general than the strictly competitive Arrow-Debreu-McKenzie solution, and providing the Kakutani fixed point trick beyond Brouwer's that Arrow-Debreu used after him, it became known that for many games there are many Nash equilibria, probably more often than there are for ADM equilibria, for which one can find conditions that guarantee both uniqueness and stability, even if there is good reason to believe that these do not hold in economic reality.

So what Schelling was given the Nobel Prize for, and the idea he pushed that contributed to the ending of the threat of nuclear war that most now take for granted when many experts now say we are in more danger of a global thermonuclear war than we were in at least the later years of the Cold War, was that of focal  points.  His original example was a group of friends living near NYC who want to meet for dinner but do  not agree on where to meet. So, they look for a focal point they can all agree on, and back in 1960 he said that might be under the clock in Grand Central Station.

The focal point that Schelling pushed tirelessly in numerous channels, most of them private but highly placed, was that there should be an internationally agreed upon focal point that there should be no first use of nuclear weapons by any nuclear weapons holder, which, if all agree to it guarantees no nuclear war aside from accidents.  There was resistance to this, within the US most notably in the air force, especially from the late Gen. Curtis E. LeMay, who not only advocated the use of nukes in the Cuban missile crisis (when we came much closer to nuclear war than most realize), but also during the Vietnam War.  His retirement certainly ended the last serious public opposition to Schelling's focal point, which somewhere during the 1970s quietly came into force without anybody publicly saying so.  And as a result "many [very well informed] people" say he was more responsible than anybody else for why there was no nuclear war during the Cold War.

Unfortunately it would seem that a lot of recent loose talk has begun to undermine Schelling's long accepted and established focal point that has restrained a possible global nuclear holocaust for decades.  It started  with associates of Vladimir Putin during when Russia was annexing Crimea loosely noting that Russia could still nuke New York City.  Spacibo, guys. Since then people friendly with Putin in other nations have been making even looser remarks as the nuclear cat is out of the bag.  I mean, according to some of them, just why cannot we use nuclear weapons anyway whenever and wherever we want?

For those interested, Tom is scheduled to speak at James Madison University at 4 PM on Wednesday, September 14 in Zane Showker 105, but if you are interested you should check with us about details. I certainly hope that he will be able to give this important lecture.h

Barkley Rosser

Nobody Knows

Actually, Everybody knows.

A Marxist Moment

The best thing about Marxism is that it provides a language for talking about comprehensive, fundamental aspects of society.  The worst is that it also imposes a template for this discussion that often doesn’t fit very well.

I just read Daniel Zamora’s When Exclusion Replaces Exploitation: The Condition of the Surplus-Population under Neoliberalism in nonsite.  The first half is really excellent.  His insight is that the shift from the old left to the new and the rise of modern neoliberalism are in some sense reflections of one another, and both are rooted in the emergence of a relatively distinct “surplus” stratum of the population in developed capitalist countries.  (I also associate this view with Loïc Wacquant, whose notion that racial division in the US has shifted from being a means of exploitation to one of exclusion was a basis for Michelle Alexander’s New Jim Crow.)  According to this argument, in the bad old days the visible line drawn through society was between the wealthy and the rest of society whose work made this wealth possible.  Now, in the bad new days the line has been redrawn between those who have steady work and a modicum of economic security on the one side, and the poor, the unemployed, and the victims of discrimination on the other.  Left and right agree on this, and only disagree about which side they valorize.  Interesting.

The second half of the essay, alas, is a big letdown.  It retreats into pure dogmatism: we read that Marx showed the exploitation of the working class is the motor that powers the whole system and only a united working class movement can end exploitation and usher in a society without all the invidious distinctions.  Zamora actually describes his intellectual retreat precisely, juxtaposing the concrete and contingent analysis of current social conditions that foregrounds various group oppressions and the abstract (his word, used over and over) revelation of Marxism that is true without any need for empirical validation.  If, like me, you’re not a believer, nothing he says about this will turn you around.  What I was hoping for was an analysis of the structures of inequality that exist today, with a grounded explanation for why the identitarian movements don’t add up to a systemic force (which I suspect but may be wrong about), and instead all I got was the same old, same old.

Tuesday, August 9, 2016

Diamond Transfer Pricing and the Tax Rate in Dubai

A follow-up to my previous post courtesy of Amnesty International:
Within the diamond supply chain, however, smuggling is not the only means by which actors such as traders and companies can unjustly enrich themselves at the expense of diamond-producing countries. A central issue is the way diamonds are valued and the phenomenon of transfer pricing. This is particularly evident in diamond trading centres operating in low tax or no tax jurisdictions….Dubai has come in for particular criticism because of the significant difference in the value of its rough diamond imports and exports (as shown in the table on page 59) and the fact that it does not tax diamond traders.243 Diamond traders in Dubai benefit from various free trade zones, including the DMCC and the Dubai Airport Free Zone Area (or DAFZA). As such, a company could export a diamond at a low value from a developing country; the diamond could then enter Dubai where the importing company marks-up the price and exports it to a related company in another trading or cutting / polishing centre. No tax is payable in the free trade zones in Dubai, so the company in Dubai makes a substantial non-taxable profit.
I sort of stumbled onto this when trying to understand the last from the European Union on their State Aid inquiries:
Under the new Diamond Regime, a trader's gross profit margin is fixed at 2.1% of its turnover.
The Belgian trader affiliate likely incurs operating expenses near 1.5% of sales (turnover) so its operating profits are a mere 0.6% of sales. The intercompany flows are likely as follows. A gold mine in Africa sells its rough diamonds to an affiliate in the UAE which converts these into polished diamonds. The UAE affiliate then sells the polished diamonds to the Belgian trader affiliate. Amnesty International is suggesting very little profit stays in Africa with most of the profits accruing to the UAE affiliate. Now if the UAE affiliate had a 55% tax rate – this would be awful tax planning. But the reality is that the UAE is a tax haven for the diamond sector.