Rewriting the Rules of the American Economy
I’ve been immersed in Nobel Prize winning economist Joseph Stiglitz report for the Roosevelt Institute entitled “Rewriting the Rules of the American Economy”. http://rooseveltinstitute.org/rewriting-rules-report His perspective is that for the past thirty-five years or so we have been tilting the rules governing the American economy ever more towards the interests of the top 1%. This is causing slow growth, endemic financial crises like the Great Recession, the wage-stagnant job recovery that has succeeded it under President Obama and the jobless recovery that preceded it under President Bush, the shrinking of the middle class, widening income inequality, stagnation of economic opportunities for the poor and the loss of American manufacturing jobs. He contends that a thorough going economic reform is necessary to restore economic equilibrium, redirect incentives and create the infrastructure of a healthy American economy. It is very provocative and deeply thoughtful.
His report (2015) predates the rise of Bernie Sanders and Donald Trump but presages their arguments about a “rigged” economic system. A number of his recommendations can now be found in the Democratic platform and in some of the policy recommendations from Secretary Clinton and Senator Sanders’ campaigns and in some of Donald Trump’s rhetoric as well (but no policy recommendations).
The recommendations are grouped under two titles “taming the top” and “growing the middle”. I found myself nodding in agreement with many of them and sharply disagreeing with others. I’ll follow up this post with more details on each set of recommendations in case you are interested.
Taming the Top
His recommendations for fixing the financial sector are as follows:
1. End “too big to fail” by capital surcharges on financial institutions that risk bringing down the entire economy if they fail.
2. Regulate the shadow banking sector (i.e. institutions like AIG and Morgan Stanley that act like banks but without the consumer and depositor protections of banks) and hedge funds
3. Transparency in financial markets – e.g. alternative asset managers like hedge funds must disclose holdings, returns and fee schedules – so customers can readily comparison-shop with good comparative information.
4. Reduce the high credit and debit card fees for consumers and sellers through more competition and better regulations
5. Tougher penalties for those who break the law (directed at the types of white collar activities that brought on the Great Recession).
6. Reduce conflicts of interest and more open and accountable elections for the Federal Reserve Board membership
His recommendations for incentivizing long-term corporate growth are as follows:
1. CEO pay – full transparency and better incentives for long term performance
2. Encourage longer term investments and discourage short term trading with a financial transaction tax
3. Empower/encourage long-term shareholders through the tax code and greater accountability and transparency for the managers of retirement funds
His recommendations for more competitive markets are as follows:
1. Reform intellectual property rights (patents and copyrights) to encourage innovation and entrepreneurship
2. Better balance in global trade deals between investor protections and labor and environmental protections
3. Permit government to negotiate drug prices
4. Open up a version of Ch. 11 bankruptcy protections to homeowners and student borrowers
His recommendations for tax system reform are as follows:
1. Raise the top marginal rate, convert deductions to credits and limit the use of tax credits (the Buffet rule).
2. Treat capital gains and dividends as ordinary income
3. Tax corporations based on their global income and remove the tax incentives for off shoring
4. Tax polluters, eliminate corporate welfare and discourage short term trading.
Growing the Middle Class
His recommendations for full employment are as follows:
1. Federal Reserve should make full employment a higher priority
2. Reinvigorate public investment
3. Invest in infrastructure to make US a world leader
4. Expand public transportation
His recommendations for workers’ rights are as follows:
1. Increase the minimum wage and increase the income threshold for overtime pay
2. Strengthen workers’ rights to collectively bargain
3. Government should set the model with its own treatment of workers and contractors
4. Higher penalties and stronger enforcement for labor law violations
His recommendations to improve labor force participation
1. Universal paid sick and family leave
2. Subsidized child care to improve women’s participation
3. Pay equity for women
4. Immigration reform to provide access to citizenship
5. Criminal justice reform to reduce incarceration rates
6. Women’s access to reproductive health services
His recommendations to expand economic security are as follows:
1. Invest in early education and universal pre-K
2. Reform tuition financing for higher education, restore protections for student loans and adopt universal income-based repayment of educational loans
3. Offer a Medicare public option for those who prefer it
4. Offer a “bank” through the Post Office for the unbanked
5. Public option for mortgages
6. Offer a voluntary public retirement system joined to Social Security.
Prepared by: Lucien Wulsin
Dated: July 28, 2016