tag:blogger.com,1999:blog-64724569464181740652024-03-13T14:56:46.019-07:00Mathur's BlogonomicsVijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.comBlogger81125tag:blogger.com,1999:blog-6472456946418174065.post-62680997773272365252022-05-07T15:55:00.002-07:002022-05-07T15:55:52.503-07:00Lack of Federal Investment in Children Ignores the Future of the Country<p><br /></p><p><span style="font-size: medium;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="font-size: medium;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiOBHpxiNsQ3TyRRLEZAoYjTRFf2r8jX9Gee-E6t3-EtcQ5gJbhqIW_WFzfNC3u5nuJEfZERZXoPlKMcTKQTezzZQ3KZanQIEV8YQqF8ViAlODUsgeNGLr2qJFLR-4i_gUrD4R8OCXvM5OycUYXgkURVQck1_RC36k1BjUm29wIaDFWaqkyOHUG0IKa" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="" data-original-height="1667" data-original-width="1227" height="136" src="https://blogger.googleusercontent.com/img/a/AVvXsEiOBHpxiNsQ3TyRRLEZAoYjTRFf2r8jX9Gee-E6t3-EtcQ5gJbhqIW_WFzfNC3u5nuJEfZERZXoPlKMcTKQTezzZQ3KZanQIEV8YQqF8ViAlODUsgeNGLr2qJFLR-4i_gUrD4R8OCXvM5OycUYXgkURVQck1_RC36k1BjUm29wIaDFWaqkyOHUG0IKa=w125-h136" width="125" /></a></span></div><span style="font-size: medium;"><br />Vijay K. Mathur</span><p></p><p><br /></p><p> <span style="background-color: white; color: #2e2e2e; font-family: Georgia, serif; font-size: 14pt; text-align: justify;">On Nov. 27-28, 2021, I published a guest commentary in this newspaper where I argued for investment in children for human capital growth. Human capital is one of the most productive inputs in the future growth of the economy. I was especially concerned about the U.S. Senate’s refusal to consider President Biden’s proposal for more federal expenditures on childcare, early childhood education and health, with special emphasis on economically disadvantaged and low-income families. I am concerned that evidence shows that politicians and many policy makers pay more attention to investment in older people than in children. I am not arguing that the federal government should ignore older people’s needs. However, lack of investment in children is not going to benefit Americans in the future. Human capital is a source of innovation, technological change and growth of the economy.</span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in;"><span style="color: #2e2e2e; font-family: Georgia, serif; font-size: 14pt;">In May 2021, Administration for Community Living (www.acl.gov) reported that the 65 years of age and older population will increase from 16% in 2019 to 21.6% in 2040. If the current spending rate continues, an increasing share of gross domestic product (GDP) will go to the older population. Howard Gleckman reports in Forbes (Feb. 1, 2019) that in 10 years half of the federal government budget (excluding interest on debt) will be spent on older people, an unsustainable scenario. A reasonable way to think is to efficiently allocate federal spending to older residents to lighten their children’s burden and to children to assure future growth. It will require rethinking of tax and subsidy policies to sustain Social Security and Medicare trust funds and to save on resources for investment in children, a topic requiring detailed investigation.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: Calibri, sans-serif; margin: 0in;"><span style="color: #2e2e2e; font-family: Georgia, serif; font-size: 14pt;"> </span></p><p style="background-color: white; font-family: "Times New Roman", serif; line-height: 17.4pt; margin: 0in 0in 13.5pt; text-align: justify;"><span style="color: #2e2e2e; font-family: Georgia, serif; font-size: 14pt;">A May 2019 report, “Kids Care,” by Urban Institute states, “Early childhood is a critical period of development, laying the foundation for lifelong skills, behaviors, and health outcomes.” From 2011 to 2017, per capita federal expenditures on infants and toddlers had gone down by 5%. In 2020, 7% of the federal budget was allocated for spending in children 18 years old and under and 33% on adults for Medicare, Social Security and Medicaid combined. The emphasis represents misallocation of federal resources that undermines efficiency and thus economic growth.<o:p></o:p></span></p><p style="background-color: white; font-family: "Times New Roman", serif; line-height: 17.4pt; margin: 0in 0in 13.5pt; text-align: justify;"><span style="color: #2e2e2e; font-family: Georgia, serif; font-size: 14pt;">The country is attempting to improve the skills of high school students by starting STEM programs, as well as programs to improve the skills of adults, to prepare them for the labor force in the technology-oriented economy. But this effort still ignores a significant investment commitment in children, especially in low-income and poor families. Growth theorists find that even after accounting for inputs of labor, capital, materials and human capital in production, there is residual output that is unaccounted for. The theorists account that residual output to technology. However, it is human capital that is one of the most significant generators of innovations and technical change. If we only concentrate on the short-term investments in education, improving skills and talents, and ignore the future accumulation of human capital, the standard of living of future generations of Americans will deteriorate.<o:p></o:p></span></p><p style="background-color: white; font-family: "Times New Roman", serif; line-height: 17.4pt; margin: 0in 0in 13.5pt; text-align: justify;"><span style="color: #2e2e2e; font-family: Georgia, serif; font-size: 14pt;">Investment in children in disadvantaged families not only builds their human capital but also increases labor force participation of parents in the job market. This creates more output and growth in the current period and helps build parents’ skills that affect their wage growth and poverty status. Lack of childcare created hardships for such families during COVID-19, causing them to drop out of the labor force. The labor market still has not recovered from labor shortages in many businesses requiring personal services. Federal spending provided some economic relief to many such families.<o:p></o:p></span></p><p style="background-color: white; font-family: "Times New Roman", serif; line-height: 17.4pt; margin: 0in 0in 13.5pt; text-align: justify;"><span style="color: #2e2e2e; font-family: Georgia, serif; font-size: 14pt;">Since the schools were closed during the spread of the pandemic, children’s education, especially in low-income and poor families, suffered. There is a concern among many educators and policy makers that this loss of education will affect the future educational performance of those children who were not able to participate in distant learning. Researchers Eric Hanushek and Ludger Woessman find that the loss of learning due to school closings during the COVID pandemic is expected to cost $14.2 trillion in current dollars. A paper by R. Akee et al. in American Economic Review (March 2018) argues that parental resources affect “children’s test scores, physical health in childhood, long-term educational attainment, and social outcomes.”<o:p></o:p></span></p><p class="MsoNormal" style="background-color: white; font-family: Calibri, sans-serif; line-height: 17.4pt; margin: 0in 0in 13.5pt; text-align: justify;"><span style="color: #2e2e2e; font-family: Georgia, serif; font-size: 14pt;">Studies show that investments in early childhood in disadvantaged families has a very significant payoff in the future achievements of children in education and success in the labor market.<o:p></o:p></span></p><i><span style="border: 1pt none windowtext; color: #2e2e2e; font-family: Lato, sans-serif; font-size: 12pt; padding: 0in;">Vijay Mathur is a former chairman and professor in the Economics Department and now professor emeritus at Cleveland State University, Cleveland, Ohio. He resides in Ogden. It was published in the Standard Examiner, Ogden, UT,11/27-28/2022.</span></i>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-84009568072241180382021-11-27T14:10:00.001-08:002021-11-27T14:11:46.898-08:00Are Americans losing their identity as Americans<p><span style="font-size: medium;">Vijay K. Mathur</span></p><p><br /></p><p></p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUirI58elLZ29bpWKykH3EyBhpfdlhZbz9S2VwLCH-edfwG11ojCwxYwfn34KAbx1pLCZjIgWubL3nkuXLvNMr0uwj0MQM2pThlecUFx02riY7SpVL_oHoLVBlmf9bcXoo7PymnW3Aq-c/s286/Vijay.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="286" data-original-width="256" height="141" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUirI58elLZ29bpWKykH3EyBhpfdlhZbz9S2VwLCH-edfwG11ojCwxYwfn34KAbx1pLCZjIgWubL3nkuXLvNMr0uwj0MQM2pThlecUFx02riY7SpVL_oHoLVBlmf9bcXoo7PymnW3Aq-c/w137-h141/Vijay.jpg" width="137" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div></div><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;"><p><span style="font-size: 16pt;">For more than a few decades, economics has branched out beyond the inclusion of traditional economic areas of investigation, such as crime, fertility, marriage and suicide. Following that tradition, George Akerlof, Nobel laureate in economics, and Rachel Kranton have investigated the role of identity in decision-making in their book “Identity Economics.” Their focus on identity implies how people think of themselves and others, how society and its norm affect their motives and behavior. They argue that” identities and norms derive from the social setting.”</span></p></span><p></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;"> </span><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;">Identities have economic consequences for people and the economy since they affect motives, behavior and decisions toward work, fair treatment of others, sense of responsibility, saving and investments, and even vaccination for contagious diseases to protect themselves and others. Americans among different subidentity groups do believe in the core value of freedom and liberty. However, among many, this value seems to be forgotten when others’ freedom is concerned. John Lock (1632-1704), a British philosopher, believed that “when one voluntarily joins a community, he/she inherently consents to the forfeiture of some freedom.” (John Locke Foundation, Oct. 31, 2017).</span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;">Our identity as Americans must supersede our secondary identities, such as white, Black, Asian, conservative, liberal, Catholic, Protestant or Muslim. All, as Americans, have to work, make decisions and take actions for the common good of the country. The divisiveness in the country, along political party lines, political ideology, region, religion, race, country of origin, not believing in the same set of facts, not trusting other Americans and the political leadership, and even hostility against others’ points of view, is undermining our identity as Americans; it also creates an environment for adverse political, socioeconomic consequences.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;">Peggy Noonan opined in the Wall Street Journal (Sept. 18-19, 2021) that, “It had to do with a sense that we are losing the thread, that America is losing the thread.” The uniting common thread is that we are all Americans, and as Americans we must strive for the common good that promotes political stability and an economically healthy economy. For example, if all Americans do their part to eliminate the pandemic of COVID-19 and its variants, all Americans will benefit from the increase in economic activity and growth.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;">Pew Research (Feb. 19, 2020) found in a survey that only 34% have trust and confidence in the wisdom of American people in making political decisions and 59% do not. This attitude filters down from the political leadership at all levels of government. The Center for Economic Progress (May 26, 2021) reports, “Talk of national unity is seen as an illusionary goal as various factions press their ideological agendas on government.” Even leaders in Congress and the states emphasize ideological agendas to win favors from their ideological groups, rather than working on an American agenda that benefits all Americans. Antagonistic effects of divisiveness have even reached medical professions, school boards and the media.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;"><br /></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;">The divisiveness prevailing in the country is astounding, even though surveys of adult Americans at Grinnell College (www.grinnell.edu) on Dec. 3, 2018, and March 3, 2021, reveal that Americans still believe in certain core values that unite us. Almost 70% to 90% of adult Americans surveyed in the poll believe in core values such as treating others with respect; belief in responsibility; acceptance of different races, backgrounds and religious affiliations; free and fair elections; and peaceful transfer of power. However, the survey in 2018 revealed a disturbingly un-American and unconstitutional view. Close to 25% believe that real Americans are those who are born in the country or have lived here for a long time and are Christians. The same poll also found that “hate of a person, group or organization is becoming more normalized.” President Trump and most of his followers highlighted this extreme animosity and divisiveness toward others.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;">Our identity as Americans affects our behavior toward others and our sense of cooperation for the common good, political stability and national prosperity. Divisiveness threatens democracy, as implied in the Grinnell surveys, and hence the economic well-being of all freedom-loving Americans. I earnestly hope that most Americans remember the core values that bind us as Americans and work toward a more perfect union. Losing our identity as Americans could be damaging domestically and internationally. As President Joe Biden stated, “Our future cannot depend on the government alone. The ultimate solutions lie in attitudes and the actions of the American people.”<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia; font-size: 16pt;"> </span></p><em><span style="border: 1pt none windowtext; color: #2e2e2e; font-family: Arial; font-size: 16pt; padding: 0in;">Mathur is former chairman and professor in the Economics Department and now Professor Emeritus at Cleveland State University, Cleveland, Ohio. He resides in Ogden. Published in the Standard Examiner,October, 21, 2021.</span></em>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-34550350556336093462021-11-27T13:51:00.001-08:002021-11-27T13:56:09.883-08:00It is time for the unvaccinated to be incentivized and nudged<p><span style="color: #2e2e2e; font-family: Georgia; font-size: large;">Vijay K. Mathur</span></p><p><br /></p><p><span style="color: #2e2e2e; font-family: Georgia; font-size: large;"></span></p><div class="separator" style="clear: both; text-align: center;"><span style="color: #2e2e2e; font-family: Georgia; font-size: large;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOs32O_cXy1Eoh-HqBjIapPe_XwtpRUpdltXxPxjL2dt05XugBbgvNlovJixaoEO9OpbJ6AzGhzUE94J8GWzk7ECFwEGi4QgJ5meypXcd_UO1zyUlxLpEF7qFs5sL5e-QIIqCULDmyQDI/" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="" data-original-height="286" data-original-width="256" height="155" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOs32O_cXy1Eoh-HqBjIapPe_XwtpRUpdltXxPxjL2dt05XugBbgvNlovJixaoEO9OpbJ6AzGhzUE94J8GWzk7ECFwEGi4QgJ5meypXcd_UO1zyUlxLpEF7qFs5sL5e-QIIqCULDmyQDI/w143-h155/Vijay.jpg" width="143" /></a></span></div><span style="color: #2e2e2e; font-family: Georgia; font-size: large;"><br /><span style="font-size: large;"><br /></span></span><p></p><p><span style="color: #2e2e2e; font-family: Georgia; font-size: medium;">Despite the emergence of the more contagious and lethal delta variant of the COVID-19 virus, many stubborn people in the U.S. and Utah are guided by their own selfish view of freedom of choice to remain unvaccinated. As I mentioned in my commentary on this issue in the Standard-Examiner on July 20, this behavior does not fit the usual assumption of rationality that requires deliberate, consistent and logical behavior.</span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="font-size: medium;"><span style="color: #2e2e2e; font-family: Georgia;"> </span><span style="color: #2e2e2e; font-family: Georgia;">I</span><span style="color: #2e2e2e; font-family: Georgia;">n that opinion piece, I outlined some of the explanations provided by professor Richard Thaler in his book “Misbehaving.” Peoples’ decisions are influenced by others who are close to them and by those who influence their identities, the opportunity cost of their decisions, the cognitive intelligence to decipher factual information from misinformation, the effect of leaders they trust, as well as some other psychological factors discussed by professor Daniel Kahneman in his book “Thinking Fast and Slow.”</span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;">Perhaps unvaccinated people have not yet reached the tipping point. Some of them might do so if someone in their family becomes very sick or dies, or a neighbor whom they trust becomes seriously ill. Malcolm Gladwell argues in “Tipping Point” that all epidemics have tipping points. In the case of the delta variant virus and the probability of development of other, more complex and virulent variants, the country’s health care system and the economy as a whole are facing perilous times. Therefore, it is in the national interest to convince a significant proportion of Americans to get vaccinated for the virus in order to develop herd immunity.</span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;">However, even a substantial increase in infections and more deaths of young and old have not persuaded 52.8% of the population of Utah to get fully vaccinated (Becker’s Hospital Review, Aug. 30). Based upon CDC tracker data for Aug. 9, Becker’s Hospital Review also reports that 47.7% of the U.S. population is not fully vaccinated. This data reveals that we are facing desperate times now and perhaps in the future.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;">Choice research shows that most people systematically make wrong choices that are not in their best interest. They have what Thaler and Cass Sunstein call “status quo bias” in their book “Nudge.” It is time to nudge naysayers who are still zealous defenders of maintaining their freedom of choice and liberty, even though their freedom of choice impinges upon others’ freedom of choice of good health and freedom from illness. John Locke (1632-1704) an English philosopher and ardent supporter of freedom and liberty as natural rights, argued for equality in freedom and liberty and doing no harm to others. He also argued that some freedoms are lost as part of the social contract with governments responsible for providing security and services.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;">In any event, nudging is a default mechanism. Thaler and Sunstein state that nudging influences choices that will make people better off “as judged by themselves.” Nudging is not a mandate. It retains and even expands freedom of choice. People also respond to incentives, as when people were offered monetary rewards for vaccination. Cleveland-Cliffs Inc. incentivized its workers to get vaccinated by offering a bonus of at least $1,500. It saved costs due to fewer turnovers. Even the federal government is providing incentives. Some unvaccinated people, who are procrastinating, may respond and find time to get the vaccination. Incentives and nudges are effective persuasion mechanisms.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;">A good example of nudging and incentives was reported in The New York Times (Aug. 27). Starting Nov. 1, workers at Delta Air Lines could choose to remain unvaccinated but have to agree to: 1) wear masks indoors, 2) get tested weekly, 3) lose protection of wages lost while quarantining and 4) pay $200 more per month for health insurance. This keeps workers’ freedom of choice to remain unvaccinated. They do not lose their jobs. Goldman Sachs requires vaccination status from its employees only as a nudging device.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;">Other examples that keep the freedom of choice of being unvaccinated are the proof of vaccination required by some universities, restaurants and hotels. Many hospitals are now charging more to unvaccinated people even when they are insured. People who want the freedom to remain unvaccinated do not have to choose those universities, restaurants and hotels and should be willing to pay for their freedom when it harms others of life, liberty and the pursuit of happiness.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="color: #2e2e2e; font-family: Georgia;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 17.4pt; margin: 0in 0in 0.0001pt;"><span style="font-size: medium;"><em><span style="border: 1pt none windowtext; color: #2e2e2e; font-family: Arial; padding: 0in;">Mathur is a former chairman and professor in the Economics Department at Cleveland State University, Cleveland, Ohio. He resides in Ogden</span></em><em><span style="border: 1pt none windowtext; color: #2e2e2e; font-family: Arial; padding: 0in;">.</span></em></span><span style="color: #2e2e2e; font-family: Georgia; font-size: 11.5pt;"><o:p></o:p></span></p>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-87937383271750265322021-08-15T13:14:00.000-07:002021-08-15T13:14:35.819-07:00Is refusal to get COVID-19 vaccination a rational decision?<p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"><br /></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Vijay K. Mathur</span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"></span></p><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwV8h4VsebTyB5tCYQBYhUVFUHWvpS4KbdYbTJYNz_fr3AzTVR4U_3MD4qJvaR9ZFncJ0GdnBqmKo2y83TeMSCwIhz_XbalOOcEbWRmltYYshWnk2wjXsfO5TZLlqursedpHRF_32nOaY/s286/Vijay.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="286" data-original-width="256" height="177" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwV8h4VsebTyB5tCYQBYhUVFUHWvpS4KbdYbTJYNz_fr3AzTVR4U_3MD4qJvaR9ZFncJ0GdnBqmKo2y83TeMSCwIhz_XbalOOcEbWRmltYYshWnk2wjXsfO5TZLlqursedpHRF_32nOaY/w158-h177/Vijay.jpg" width="158" /></a></div><br /><p></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">The CDC recently reported that 67% of Americans have at least one dose of the COVID-19 vaccine. The U.S. Census Bureau estimates that 51% of adults are still unvaccinated, and almost a quarter of adults probably or definitely will not get the vaccine. Thus, the significant percentage of unvaccinated people poses a threat to others from this contagious disease — especially from the surge in delta variant. The surge in this virus in some regions also imposes a heavy burden on the health care system. Employment and economic growth may be thwarted, thus creating once again economic misery among many Americans. The question arises — are these unvaccinated adults, especially those who do not want to get the vaccine, making a rational decision?</span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Refusal of vaccination does not fit the assumption of rationality in economics. Rational behavior requires deliberate, logically cohesive, consistent behavior, as well as behavior that results in the most satisfying outcomes. Professor Thaler, a 2017 Nobel laureate in economics, in his book “Misbehaving,” lays down some foundational principles of behavioral economics that may provide some insights into the behavior of people adverse to the COVID-19 vaccine. The principles Thaler discusses overlap many of the principles discussed by Professor Daniel Kahneman, a psychologist and a 2002 Nobel laureate in economics. He wrote a path-breaking book on human behavior, “Thinking Fast and Slow.”<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"><br /></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Thaler argues that humans pay more attention to “identified life” than “statistical life.” For example, when your neighbor’s son dies due to COVID-19, you are more willing to assist your neighbor, financially or otherwise, than when the Utah Health Department publishes deaths in Utah due to COVID-19. Perhaps many Utahns’ decision to avoid vaccination is not based upon rational thought that involves more complex decision-making, cognitive abilities and serious and deliberate thought processes. Kahneman describes two modes of thinking that affect human behavior and decision-making. He refers to them as System 1 and System 2 of the mind. In many decisions, System 1 operates automatically, quickly, effortlessly and without any forethought.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">However, complex decision-making requires System 2 that affects System 1 thinking. Such decisions involve cognitive intelligence, total focus on the issue, logical thought processes, serious and deliberate effort, and investigation to acquire as much factual information as possible.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"><br /></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Human behavior is also affected by costs born by making a decision. However, people pay more attention to out-of-pocket costs than opportunity costs (costs of giving up something because of a particular decision). If people think that they will pay a very small sum or none at all out of their pockets if they are hospitalized or get sick temporarily due to COVID-19, then that is a small price to pay for their behavior. However, the opportunity cost of being sick — e.g., lost income from work and/or good health — is too complex to calculate. It will require Kahneman’s System 2 in ascertaining the cost of their decision to avoid vaccination. Most likely, if unvaccinated people face higher insurance costs and/or out-of-pocket hospitalization costs, many, if not all, may decide to get the vaccination.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"><br /></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">The prevalence of behavior based on System 1 provides an opportunity to influential people, politicians, bureaucrats and media outlets to “prime” such individuals with certain ideas and words. The priming effect occurs when one influences actions of others by ideas and using key words. Images and environmental factors could also prime individuals into certain actions. Kahneman states that,” A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguished from truth. Authoritarian institutions and marketers have always known this fact.”<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"><br /></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Primed ideas also prime other ideas like “ripples in the pond.” It seems that former president Trump has learned this lesson well. He has primed his followers, including many politicians in the GOP and supporters in some conservative media outlets, in not believing in the benefits of vaccination for COVID-19. Fearmongering about the dangers of vaccination still continues among many GOP politicians in Congress, other conservatives and media outlets.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"><br /></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Americans must not be blinded by illusionary facts about the efficacy of the vaccine. In matters of life and death of others and themselves, and costs to their communities and the nation if the virus spreads, Americans must use their cognitive abilities to modify their ad-hoc decision about their refusal to get the vaccination. As Maya Angelou stated, “You may not control all the events that happen to you, but you can decide not to be reduced by them.”<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"> </span></p><span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Vijay Mathur is a former chairman and professor in the economics department at Cleveland State University, Cleveland, Ohio. He resides in Ogden. Published in Standard Examiner, July 20, 2021.</span>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-30714034005712523482021-03-13T13:00:00.000-08:002021-03-13T13:00:47.673-08:00Solving homelessness requires rethinking of strategy<div style="text-align: left;"><span style="font-size: medium; font-weight: normal;">Vijay K. Mathur</span></div><div style="text-align: left;"><span style="font-size: medium; font-weight: normal;"><br /></span></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgem2a7aYSZ2LgXXf6qRW0s0wHoXbvoX7p_GJmrax_SfJx9UVU_EU4UHTHVi9gtV1cgptQy0QqfhGYCllI2Ub_-ljMgW7aRc9koA2FHMOF66enEr0zV9ACK_nNym8ugT00G3YH3aT3bo7Q/s286/Vijay.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="286" data-original-width="256" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgem2a7aYSZ2LgXXf6qRW0s0wHoXbvoX7p_GJmrax_SfJx9UVU_EU4UHTHVi9gtV1cgptQy0QqfhGYCllI2Ub_-ljMgW7aRc9koA2FHMOF66enEr0zV9ACK_nNym8ugT00G3YH3aT3bo7Q/w179-h200/Vijay.jpg" width="179" /></a></div><br /><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"><br /></span></div><div><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"><br /></span></div><div><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">The homelessness problem throughout the country, including Utah, has existed for decades. Poverty and low income relative to affordable housing are the root causes of homelessness. The COVID-19 pandemic has worsened the problem, since many have lost their jobs without adequate financial benefits from the government to cope with the economic hardships.</span></span><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">However, individuals and families become homeless because, even if employed, they cannot afford housing prices in their areas. For example, the California Policy Lab study, February 2020, found that in Los Angeles County for all employed homeless average earnings were $9,970 per year before becoming homeless. Similarly, a study on New York City’s homelessness by the National Low Income Housing Coalition (April 2018) found that 45% of single homeless adults and 38% of homeless adults in families earned wage income at or near the poverty level.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"><br /></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">The federal effort started with passage of the McKinney-Vento Homeless Assistance Act of 1987. It created varied grant programs to support homeless people and families. Grants to localities include prevention programs, housing subsidies and different housing and sheltering programs. However there is an overall lack of vision that recognizes the feedback loop between low income, housing prices and homelessness. Mental health, substance abuse, criminal record and domestic violence also result in the loss of employment opportunities and adequate income and are part of the same overall narrative for homelessness.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">Low income with reduced supply of low-cost housing contributes to homelessness. When households owning and/or renting mid-income-level housing move out to higher-end housing or rental units, they leave behind units that filter down as low-cost units. Upward mobility affects housing prices at all income levels. But when the filtering process of homeowners, one of the main supply factors, slows down (as it is now) it causes housing prices to soar at all levels, including rental units.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">Rental units’ residents have less incentive to maintain the current units, and landlords may not want to spend too much money on maintenance. Thus, landlords tend to filter the units down as low-cost housing. The study by the Joint Center for Housing Studies (JCHS) at Harvard University (September 2019) finds that affordability is dropping over the last three decades due to the decline in low-cost rental units for under $600 per month (inflation adjusted). This rent threshold is the maximum affordable rent for households earning $24,000 per year.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">The homelessness problem is primarily a city problem. Low-cost housing threshold varies by cities both in low and high cost of living states. States such as Utah and Wyoming are low-cost states, but California and New York are high-cost states. The JCHS study found that, in Utah, rental units at the $600-per-month threshold and at earnings of $24,000 dropped by 47% from 1990 to 2017. In high-cost states, larger declines in low-rental units were at a $1,000-per-month threshold. M. Honing and R. Filer, American Economic Review, 1993, found that a 10% increase in low-quality housing rent increases homelessness by 12.5%.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">In addition, new construction activity, usually at the high end of the market, has also dropped in many cities due to antiquated land use and housing regulations. According to the Council of Economic Advisers (CEA) (2019), varied deregulations to remove housing supply constraints in 11 metropolitan areas would decrease rental prices and reduce overall homelessness by 13% in the U.S. Construction and hence housing prices are also influenced by interest rates. For example, a 1% increase in interest rate decreases housing prices by 7.6% in San Francisco and 2.6% in Atlanta (see E. Glaeser and J. Gyourko, Berkeley Economic Press, October 2008).<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">A policy initiative that encourages more jobs skills, job assistance and mental health services to the homeless would reduce poverty, and deregulations and incentives for the construction of low-cost housing and rental units to increase supply would make a significant dent in homelessness. Utah is recognizing the problem of supply constraints and efforts are being made in Salt Lake City and Ogden to loosen zoning laws to encourage building affordable high-density housing and “mother-in-law” units.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"> </span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">Less emphasis should be given to public and private services to homeless people and families on a permanent basis (see CEA). Such activities provide disincentives to the homeless population to make an effort to seek and welcome gainful opportunities to get out of homelessness. Homelessness is a blemish on this rich and wealthy country.<o:p></o:p></span></span></p><p style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;"> </span></span></p><i><span style="color: #444444; font-family: Helvetica;"><span style="font-size: medium;">Vijay Mathur is a former chair and professor in the economics department at Cleveland State University, Cleveland, Ohio. He resides in Ogden. It was published in the Standard Examiner, December 3, 2020.</span></span></i><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;"><br /></span></div><div><span style="font-size: medium;"><br /></span></div></div>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-16564952947676584442021-03-13T12:41:00.001-08:002021-03-13T12:43:55.848-08:00Is minimum wage increase good economic policy?<p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-size: medium;"><span style="caret-color: rgb(68, 68, 68); font-family: Times;">Vijay</span><span style="font-family: Times;"> K. Mathur</span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><br /></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Times; font-size: large;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgo1p7r2cgWEe9NkePZvg4W9L-It78oPcDTXPtOEy_dA4oWVTMdbB4hq_Rp2ZevWI6AC3H9KvWoveUjKVKxcAlVNEwX398NcSoeR_-DjBjwScWvLClv5nRPxHsPXYk2_84iw6ESvPUieHQ/s286/Vijay.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="286" data-original-width="256" height="165" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgo1p7r2cgWEe9NkePZvg4W9L-It78oPcDTXPtOEy_dA4oWVTMdbB4hq_Rp2ZevWI6AC3H9KvWoveUjKVKxcAlVNEwX398NcSoeR_-DjBjwScWvLClv5nRPxHsPXYk2_84iw6ESvPUieHQ/w142-h165/Vijay.jpg" width="142" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><p></p><p class="MsoNormal" style="line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Times;"><span style="caret-color: rgb(68, 68, 68);"> </span></span><span style="font-family: Times; font-size: large;">Most supporters believe that the federal minimum wage must be increased to close to $15 per hour. Sen. Bernie Sanders is an ardent proponent of increasing the minimum federal wage to $15 per hour by 2024 and indexing it to the median wage thereafter. According to the Bureau of Labor Statistics (April 2020), among 82.3 million (16 years and older) hourly paid workers (but not all workers), 392,000 earned the minimum federal hourly wage of $7.25 and 1.2 million earned lower than that wage in 2019. Hence, close to 1.6 million were paid the federal hourly minimum wage or less in 2019.</span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;"> </span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;">The usual argument against increasing the minimum wage, especially advocated by conservative politicians and others, is that the increase will result in unemployment of unskilled workers, teenagers and beginners in the labor market trying to gain work experience. The argument assumes a competitive labor market where workers and employers have the same bargaining power. The argument implies that given the demand and supply conditions in such a labor market, there will be excess supply of those who wish to work at the higher minimum wage than the quantity demanded. Workers most affected by the increase will be in industries such as leisure and hospitality, education and health care, and wholesale and retail that combined employed 79% of such workers in 2019.<o:p></o:p></span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;"> </span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;">However, the above argument against the increase misses some important counterpoints. The purchasing power of the minimum wage is 17% less than it was in 2009 (Economic Policy Institute, June 17, 2019). In addition, the wage has not been adjusted to the increase in productivity and/or technical change over a period of time. The resulting increase in demand for labor due to productivity gains would absorb the increase in the number of workers attracted by higher wage, hence no unemployment. In addition, labor economists have argued that when workers are paid a wage rate that they deem to be fair, they are more loyal to their employers (thus decreasing turnover cost), work hard and increase productivity. Thus, the increase in productivity, labor force participation and increases in consumption expenditures would increase economic growth.<o:p></o:p></span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;"> </span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-size: medium;"><span style="font-family: Times;">Henry Ford introduced this idea of efficiency wage in January 1914 when he increased the wage of his plant’s male workers in Detroit to $5 per day for 8 hours a day of work from $2.34 for a 9-hour work day (for females in 1916). It increased productivity, loyalty and created a more stable workforce, thus decreasing turnover cost. It also made the plant workers economically better off, resulting in increased sales of Fords (</span><a href="http://www.history.com/"><span style="font-family: Times;">www.history.com</span></a><span style="font-family: Times;">).<o:p></o:p></span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;"> </span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;">Empirical evidence also seems to support minimum wage increase. Studies by David Card and Alan Krueger in 1994 and 2000 showed that a minimum wage increase in a large sample of food establishments in New Jersey did not decrease employment, but showed some increase. The fear of large teenage employment decline is also unfounded, but benefits of wage increase are substantial. The EPI reports (February 2019) that a minimum hourly wage increase of $15 by 2024 will benefit 39.7 million workers. It will also increase consumption and address problems associated with high income inequality and the poverty rate.<o:p></o:p></span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;"> </span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;">It is apparent that a $15 minimum wage is not high enough at this time in the economy to result in an adverse effect on employment and/or inflation, but rather will result in more benefits to the economy and to those working at minimum- and lower-wage rates. President Theodore Roosevelt had the right idea when he remarked, “No man can be a good citizen unless he has a wage more than sufficient to cover the bare cost of living and hours of labor short enough so that after the day’s work is done, he will have time and energy to bear his share in the management of the community, to help in carrying the general load.”<o:p></o:p></span></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="font-family: Times;"><span style="font-size: medium;"> </span></span></p><p><i><span style="font-family: Times;"><span style="font-size: medium;">Vijay Mathur is a former chairman and professor in the economics department at Cleveland State University, Cleveland, Ohio. He resides in Ogden.</span><span style="color: #444444;"> </span></span></i></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 71.3pt 0.0001pt 0in;"><span style="color: #333333; font-family: Helvetica; font-size: 16pt;"> </span></p>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-88889342647485525472020-12-07T13:34:00.000-08:002020-12-07T13:34:49.581-08:00Winner-take-all capitalism undermines democracy<p>Vijay K. Mathur</p><p><br /></p><p> <em style="font-family: "Times New Roman"; font-size: 10pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">“We can have democracy in this country, or we can have great wealth concentrated in the hands of few, but we can’t have both.”</span></em></p><p align="right" style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt; text-align: right;"><em><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">— Louis D. Brandeis</span></em><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"><o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">In the U.S., we find the emergence of winner-take-all capitalism (WTA) in markets. In WTA markets, capitalists become prosperous and labor’s share of income declines. There are winners and losers in such markets. Professor Robert Frank states in “Winner-Take-All Society”: “The top prizes in many winner-take-all markets, however, significantly overstate the social value added by top performers.” Hence they attract undue amount of resources.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">WTA markets create income and wealth inequality. Pew Research (January 9, 2020) reports that median income of high-income households was seven times the median income of low-income households in 2018. Wealth inequality was even greater. Median wealth of high-wealth households was 75 times the median wealth of low-wealth households in 2016. These inequalities are rising and may get worse.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"><br /></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">Professor Frank notes that the extraordinary reward structure, common in entertainment and sports, has become more widespread in the economy as illustrated by a couple of examples here. Nobel Laureate economist Joseph Stiglitz, in “The Price of Inequality,” finds that “the six heirs to the Wal-Mart (sic) Empire command wealth of $69.7B, which is equivalent to the wealth of the entire bottom 30 percent of the US society.” Chrystia Freeland states, in “Plutocrat,” that during the deepest recession in 2007, Blackstone, a large private equity firm, raised $4 billion by creating a publicly held company worth $31 billion at that time (now worth $554 billion). And one of the cofounders, Steve Schwarzman “came away with personal stake worth $8 billion at that time, along with $677 million in cash.” Now, he is worth $18.3 billion.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">One probable result of WTA markets is that the growth of elites with substantial resources undermines democracy. Theoretical and empirical evidence show that in the early beginning of a democracy, income inequality increases, but in more mature democracies, income inequality decreases. However, Stiglitz wonders why pre- and post-tax income inequality, even including transfer payments, is greater in the United States than in other advanced countries with similar technologies and per capita incomes.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">Stiglitz hypothesizes that laws and regulations through institutional political framework govern the nature of market forces, and I may add, the trajectory of the distribution of the social product. Political scientists Jacob Hacker and Paul Pierson, in “Winner-Take-All Politics,” also share similar views. WTA markets affect not only income and wealth inequality but also political inequality, where the political process works for the superstars who control most resources. WTA creates crony capitalism, where the capitalists engage in rent-seeking behavior (using political process to seek economic benefits such as subsidies, less market competition, lax laws and regulations, and favorable tax laws). This ultimately distorts the distribution of income and wealth.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">WTA markets also affect overall productivity, hence growth rates. Stiglitz argues that the decline in the productivity of low-wage workers is more than the increase among high-wage workers. He also adds that experimental evidence shows that “raising wages of workers who felt that they were being treated unfairly had a substantial effect on productivity.” Productivity affects economic growth. WTA markets misallocate resources due to less labor mobility and competition in markets, therefore creating inefficiencies in the economy. Concentration of resources in few hands and less market competition also creates disincentive for innovations, a hallmark of economic growth. WTA markets and politics also reduce trust and create uncertainty in the overall economy, as we are going through now, and hence decreasing investment.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"> </span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;">It appears that the COVID-19 pandemic may further lead to the concentration of resources and power in the hands of a few capitalists, since there is an incentive to substitute capital for labor in production. Capital cannot get infectious diseases, hence reducing the threat of production shutdowns. However, as a result the consumer base may dry up, thus worsening the effect of WTA. Democracy and social justice for all cannot survive in a society that consists of winners and losers.<o:p></o:p></span></p><p style="font-family: "Times New Roman"; font-size: 10pt; line-height: 19.25pt; margin: 0in 0in 0.0001pt;"><span style="color: #444444; font-family: Helvetica; font-size: 11.5pt;"> </span></p><i><span style="color: #444444; font-family: Helvetica; font-size: 12pt;">Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, Ohio. He resides in Ogden</span></i><span style="color: #444444; font-family: Helvetica; font-size: 12pt;">.</span>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-9181958036298276872020-09-16T15:02:00.000-07:002020-09-16T15:02:59.586-07:00Fear of refugees depriving Americans of jobs is groundless<p> <b style="font-family: "Times New Roman";"><span style="font-size: 16pt;"> </span></b></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;">Vijay K. Mathur<o:p></o:p></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;">Arrival of refugees at an increasing rate at the US-Mexico border in the past couple of years has further heightened the hostility of the Trump administration toward refugees and immigration. Now the administration has issued proclamation 10014, June 22, 2020, to stop the entry of aliens as immigrants for 60 days with some exceptions (</span><a href="http://www.whitehouse.gov/" style="color: purple;"><span style="font-size: 16pt;">www.whitehouse.gov</span></a><span style="font-size: 16pt;">). The excuse is to protect Americans from adverse health outcomes and job loss to aliens due to the Covid-19 outbreak.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;">Since 1947 various attempts have been made by the US administrations to reform the chaotic rules and regulations that deal with the refugees’ issue, according to the State Department study, August 2017. Finally, Congress decided to pass the Refugees Act in 1980 and used the UN definition of refugees. It also standardized the procedures for their resettlements and established the Office of Refugees Resettlement (ORS).<o:p></o:p></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;">The question is whether the fear of refugees (including asylees) taking jobs from Americans and becoming a burden on American society is grounded in facts. Perhaps the fear created by the Trump Administration is not based on the evidence of the economic status of refugees in the labor market. Courtney Bell, Christian Dustman and Ian Preston (BDP), Journal of Economic Perspective, Winter 2020, find that male refugees, even with less human capital, lacking language and job skills, caught up to the employment rates of other immigrants within two years and to the natives within ten years after their arrival, a better outcome than Canada, Australia and many countries in Europe. However, employment rates of refugee women were less than their male counterparts, other migrant and native women. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;">The complaint that refugees would affect employment and wage rates of lower skilled workers is also unsubstantiated. The research by Professor David Card of Princeton University in 1990 examined the consequences of the Mariel Boatlift of 125,000 Cuban refugees in 1980, to Miami. Close to 45,000 Cuban refugees, who permanently settled in Miami, had almost no effect on wages and unemployment of less skilled workers in the Miami labor market. Other studies reported by National Immigration Forum (NIF), June 14, 2018, also support this result. In addition, the Forum found that in 2015 there were more refugee entrepreneurs than native-born entrepreneurs. Over 181,00 refugee entrepreneurs generated $4.6 billion in business income. Refugees’ total net fiscal contribution to budgets at all levels of government was $63 billion during 2005-2014.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;">Gardner Policy Institute reports, April 2017, that Utah had 11,408 total new refugee arrivals from 2006 to 2016. Most were concentrated in Salt Lake County and were from nations such as Congo, Syria, Vietnam and Iraq. The IZA Institute of Labor Economics, Bonn, Germany, February 2018, reports that during 2005-2010 Utah’s average employment rate among all refugees was slightly less than 30%, ranking 24<sup>th</sup>out of 41 reported states. Their self-employment rate ranking (a sign of entrepreneurship) was even worse than other states (see IZA DP NO 11343). Utah policy makers need to pay more attention to this unsatisfactory record.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;">Despite the general success in the employment sector of the US, refugees faced a greater wage gap than in many other countries within 2 years of arrival: 60% lower than natives and 51% lower than other immigrants. The wage gap, though lower, persisted even a decade after their arrival (see BDP). Perhaps poor health and lack of language and job skills may be contributory factors. However, after 25 years, refugee households’ median income was $14,000 above overall median income of US households (see NIF), thus the fear of economic burden of refugees is illusionary. <o:p></o:p></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;">The US has thrived on the contributions of immigrants and refugees. Cato Institute, July 20, 2018, finds that Australia and most Western and Northern European countries are more accepting nations for refugees than the US. The fear created by the Trump Administration about refugees and immigrants is unwarranted. However, an orderly admission process is needed. Congress is obligated to pass a comprehensive immigration bill to resolve the current chaos caused by haphazard policies on refugees and immigration.<o:p></o:p></span></p><p class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;"><span style="font-size: 16pt;"> </span></p><i><span style="font-family: Cambria; font-size: 16pt;">Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, OH. He resides in Ogden</span></i><span style="font-family: Cambria; font-size: 16pt;">. </span>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-78357771653584922002020-05-27T15:12:00.000-07:002020-05-27T15:12:24.795-07:00Economic recovery policies must focus on income inequality rather than on GDP growthVijay K. Mathur<br />
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Policymakers, following economists and media in general, have traditionally focused on implementing policies to increase growth in GDP (Gross Domestic Product). However, beginning in the early 1970s, increasing income inequality shows that all Americans have not shared the prosperity generated by economic growth. Isabel Sawhill, in her book "The Forgotten Americans," raises this issue very cogently.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Sawhill primarily addresses the economic plight of the white working class between the ages of 25 and 64. Since the ’70s, labor force participation has been decreasing and wage and salary income has been stagnant for this group, even with the increase in productivity. The same holds true for most Americans. The labor force participation rate peaked at 67.3% in early 2000 and has since declined to almost 63% percent, per the Bureau of Labor Statistics. Most productivity gains have gone to Americans in the top of the income distribution. Hence, income inequality has increased, and its incidence is harder on low- and middle-income Americans with an inadequate social insurance system.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Congressional Research Service reported July 23, 2019, that cumulative percent change during 1979-2018 in real wages for households in the top 10% of the income distribution was 37.6%, while for the middle- and low-income households it was 1.6% and 6.1%, respectively. Men in the middle and low income lost and women gained real wages. Household income for the top 1% increased 229% while the bottom 90% gained only 46% for the years 1979-2015 (Economic Policy Institute (EPI), March 27, 2019). Wage inequality is the driving force for income inequality. Using census data, Utah Workforce Services reports that Utah’s income inequality index (Gini coefficient) declined during 2014-2017 but has increased since 2017.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">The capitalist system, supported by technological revolution and globalization, lately has not generated an economic system where all Americans have shared in private sector prosperity and growth in productivity. Real wages have diverged from productivity since the ’70s. EPI reports that cumulative percentage change in productivity from 1979 to 2017 was 70.3%, while hourly compensation grew only 11.1%. It is the responsibility of the government and the private sector to ensure jobs’ growth, with wage growth commensurate with increase in productivity. The gig economy, with more part-time workers and contract workers, and more self-employed (not by choice), is not a healthy sign of a growth economy, higher standard of living and happiness.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Involuntary unemployment surprises many economists, especially conservative politicians and policymakers. They would argue that a rational individual should be willing to accept a job, even if wages paid are below his or her expectations. However, as Nobel Laureate Professors George Akerlof and Robert Shiller argue in the book "Animal Sprits," the answer lies in efficiency wages. Effectiveness and efficiency of work effort in a job depends upon the wages paid. Employers cannot monitor their workers' efforts perfectly in doing their jobs. Employers’ preference for lower wages may backfire in lack of motivation, reduced work effort and productivity.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">The COVID-19 pandemic has further worsened the economic well-being of low- and middle-income Americans. Their employment prospects look dim even after the emergence of a virus treatment and vaccine. Policymakers have to implement plans for education and training programs to prepare the labor force for emerging technologies. Utah has done better than many other states during the epidemic. Reduction in unemployment claims in Utah is a healthy sign for a quicker recovery. However, attention must be given to shared prosperity.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">The growth rate of the economy is essential, but the focus must be on its distributive aspects — i.e., how it affects working Americans whose main earnings and standard of living is determined by labor market participation. Income is based upon education and training in the technologically sophisticated economy. I hope that our policymakers and politicians are wise enough to foresee the upcoming challenges.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Mathur is former chairman and professor of Economics, Department of Economics, Cleveland State University, Cleveland, OH. He blogs at<span class="apple-converted-space"> </span></span><span style="font-family: Cambria; font-size: 12pt;"><a href="http://mathursblogonomics.blogspot.com/" style="color: purple;"><span style="color: #323232; font-family: Helvetica; font-size: 14pt;">mathursblogonomics.blogspot.com</span></a></span>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-47924189642530132892020-05-27T15:02:00.000-07:002020-05-27T15:02:37.914-07:00The Free market: An instrument of economic growthVijay K. Mathur<br />
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">In the current Democratic presidential debates, concern is raised that free market capitalism is contributing to income and wealth inequality. Capitalism now is seen as crony capitalism, where businesses get political and regulatory favors to benefit themselves rather than most Americans, thus increasing income inequality. Is there a better economic system than free market that brings growth and prosperity to the nation and its people?<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">Presidential candidate Sen. Bernie Sanders is a proponent of “democratic socialism,” a term borrowed from the economic system of Nordic countries (such as Sweden, Norway, Denmark) that existed in the 1960s. These countries are now far removed from socialism and have a thriving free market system, more freedom (<span class="MsoHyperlink" style="color: blue; text-decoration: underline;"><span style="color: #0093ce;">www.heritage.or</span></span>g), less regulation, higher per capita income and lower income inequality than the US. They have a very robust and extensive social safety net compared to the US, and their residents are willing to pay higher tax rates to support it.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">What kind of free market system produces high growth and prosperity that benefits most people in a country? Contrary to the general notion among many economists, William L. Baumol, professor of economics at Princeton and New York Universities (now deceased), cogently argued in his book “The Free-Market Innovation Machine” that an oligopolistic market structure with few firms dominating in competitive free markets drives innovation and growth. Free market competition among a few dominant firms forces them to make innovations part of their economic strategy to survive. Innovations are “systematized” and “routinized” in oligopolies and are the drivers of economic growth and higher standard of living. Utah’s growth is largely driven by innovating industries, called super-centers by the Brookings study (The New Yorker, Feb. 3, 2015). Utah is one of the top 15 innovation centers in the country.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">Oligopolies have resources to routinize innovations and keep track of other firms’ behavior in order to be competitive. However, a large number of small firms competing in perfectly competitive markets (an ideal free market structure) do not have resources to routinize the innovation process. In addition, they cannot keep track of other competitors’ economic strategies, ascertain emerging technologies and dynamic movements of markets.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">Many individual innovators and entrepreneurs eventually transform themselves into larger oligopolistic firms. Examples of new small-scale startups that eventually became giant multinational companies are Google (now part of Alphabet), Microsoft and Apple. These companies compete in oligopolistic markets and are constantly engaged in incremental product innovations to keep ahead of their competitive rivals.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">A labor force that matches the skills and talents needed in innovative companies participates in the economic growth and prosperity. Professor Thomas Philippon argues in his book “The Great Reversal” that market concentration in the U.S. has been increasing since the 1990s due to oligopolies, thus causing income inequality and efficiency problems. However, as Baumol, John Panzar and Robert Willig contend in their book on contestable markets, efficiency problems do not arise when markets are contestable, where entry and exit of businesses are relatively easy. Antitrust laws and regulations must make sure that there are minimum barriers to entry and exits in markets.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">The threat of entry is precisely what persuades incumbents to constantly engage in innovations, maintain market share and increase profitability. In the long run, exorbitant profits are driven down by competition due to the entry of new competitors, who also bid up wages for the labor they need to compete. I am sure most are familiar with the fate of companies such as IBM, Xerox and Kodak, and traditional auto companies due to the entry of Tesla.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">The U.S. economy is a free market economy and increasingly dominated by oligopolistic firms, mostly in service and high tech industries. In the short run, the labor market is going through a structural change, because it has not kept up with the emergence of new technologies. In some corners of the country, there is a battle cry for democratic socialism since a significant part of the labor force, due to inadequate technological training, especially in manufacturing, has not participated in the prosperity of businesses and the economy.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">The short-term hardship of Americans, who are severely impacted by technological change, must be dealt with. But democratic socialism and crony capitalism (with tacit political favoritism) are not the answers. I hope our government learns some of the novel ways Nordic countries have dealt with the economic hardships of their citizens, not by promoting socialism and crony capitalism but by adopting free market strategies that promote innovations and growth.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14.5pt;">Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, OH. He blogs at<span class="apple-converted-space"> </span><span class="MsoHyperlink" style="color: blue; text-decoration: underline;"><span style="color: #323232;">http://mathursblogonomics.blogspot.co</span></span>m.</span>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-73951794255162063082020-05-27T14:53:00.000-07:002020-05-27T14:53:42.367-07:00Reversing American leadership in free trade subverts US interests<div style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27.75pt; margin: 0in 0in 0.0001pt;">
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">In 1817 David Ricardo, in “Principles of Political Economy and Taxation,” proposed his theory of comparative advantage where he argued that trade policies in England were protectionist. Comparative advantage proposed that beneficial trade, between two countries and two products, for example, is probable even if one country is absolutely more efficient in the production of both products. However, in the 1930s most nations, including the U.S., imposed trade restrictions, such as tariffs and currency devaluations, to boost exports and reduce imports. Hence, world trade and economies shrank.</span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">After World War II, the U.S., U.K. and 42 other nations met at Bretton Woods, New Hampshire, to fix the world trading system. They established the International Monetary Fund (IMF) to monitor rules for trade and international finance and provide financial assistance to countries with balance of payment deficits. Under U.S. leadership, the World Bank and the General Agreement on Tariff and Trade (GATT), precursor to the World Trade Organization (WTO), were established to provide assistance for economic development, promote trade liberalization and arbitration on complaints of unfair trade practices.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">The U.S. leadership succeeded in opening up more trade among nations that benefited all countries, including the U.S. The U.S. total trade was 27.09% of the GDP in 2017 and was almost the same in 2018. Despite the U.S. tariffs on imports, the trade deficit increased by 10% during 2016-2017 (<span class="MsoHyperlink" style="color: blue; text-decoration: underline;"><span style="color: #0093ce;">www.macrotrends.ne</span></span>t) and 12.45% from 2017 to 2018 (<span class="MsoHyperlink" style="color: blue; text-decoration: underline;"><span style="color: #0093ce;">https://.world101.cfr.or</span></span>g). It has narrowed slightly in 2019. However, Utah exports are close to three times its imports, thus resulting in a large trade surplus during 2017-2018. (<span class="MsoHyperlink" style="color: blue; text-decoration: underline;"><span style="color: #0093ce;">www.census.go</span></span>v). Regrettably, it may suffer from trade restrictions in future years. Business Roundtable reported that most exports from Utah are by small- to medium-size companies, and trade created 1 in 5 jobs in 2013.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">Under President Trump’s administration, the U.S. leadership in promoting free trade is crumbling. The U.S. is engaged in dismantling the WTO court, weakening the institution that promotes free trade. Selectively imposing import tariffs from China and Europe, the largest trading partners, to improve trade deficits is not having much success. The U.S. withdrawal from multinational trade treaties, except replacing NAFTA with USMC (with minor changes), is not in the national interest.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">Import tariffs on products do not provide effective protection to home industries. For example, an import tariff on electrical machinery and steel products increases production cost and prices of products. It decreases demand for products in the U.S., hence the demand for labor, capital and raw materials in the production of those products. Price increases also make our products less competitive in export markets, thus contributing to trade deficit, economic growth and employment. In fact domestic investment and growth is declining. Bloomberg economists calculate that a 25% tariff shaves 1.5% off economic growth, according to a May 13, 2019 article.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">The Federal Reserve study from Dec. 23, shows that tariffs by U.S. in 2018 and retaliatory tariffs by trading partners have reduced manufacturing employment and increased producer prices due to an increase in input costs. Aside from the beneficial effect of trade on employment and prices, the question is what are the other gains from trade?<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">Trade enhances product variety and consumer choice. It promotes intra-industry trade. For example, the U.S. exports and imports automobiles of different makes, models, quality and prices. Trade increases competition in the markets, and leads to economies of scale in differentiated products. The most productive firms (businesses) survive and expand and less productive firms contract or go out of business. This increases overall productivity in industries and in the country, and hence wages. More productive and competitive firms with expanding local and world markets innovate new products and processes. Thus competition increases churn in markets and promotes formation of new businesses.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">Imports from lower wage countries, especially in manufacturing, do lower wages and real incomes in the U.S., especially of mid-skill Americans. But loss of wages and income is also partly due to the use of new technologies in businesses. This problem can only be fixed if the U.S. competes in the world market in high-valued products, for example in services and intellectual property-based industries. It must train the labor force for those advanced industries. Competing in traditional manufacturing products is a lost cause. The intellectual property dispute with China is an excuse for general protectionist policies. A policy that claims that trade restrictions would brighten the future living standard of Americans is self-defeating.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 16.5pt;">Leadership requires that U.S. persuade other nations to further open their markets to increase world trade so that all can prosper in the future.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14.5pt;">Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, OH. He blogs at<span class="apple-converted-space"> </span></span><span style="font-family: Cambria; font-size: 12pt;"><a href="http://mathursblogonomics.blogspot.com/" style="color: purple;"><span style="color: #323232; font-family: Helvetica; font-size: 14.5pt;">http://mathursblogonomics.blogspot.com</span></a></span><span style="color: #444444; font-family: Helvetica; font-size: 14.5pt;">.</span>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-28074908179527992192019-11-06T15:28:00.000-08:002019-11-06T15:28:19.941-08:00Adverse Economic Consequences of Ideology Driven, Ill Informed or Not Voting<br />
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<em><span style="color: #444444; font-family: Times; font-size: 16pt;">“A man without a vote is a man without protection.” </span></em><em><span style="font-family: Cambria; font-size: 12pt;"><o:p></o:p></span></em></div>
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<em><span style="color: #444444; font-family: Times; font-size: 16pt;"> Lyndon B. Johnson</span></em><i><span style="color: #444444; font-size: 16pt;"><o:p></o:p></span></i></div>
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<span style="color: #444444; font-size: 14pt;">Ill-informed voters and low voter turnout, aside from threatening democratic values, often end up electing politicians who decide on policies that result in adverse economic consequences for most Americans. Pew Research reports that in the 2016 presidential election 61.4% of the voting age population in the U.S. voted, the same as in 2012.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">In Utah, the 2016 voter turnout was an impressive 82%. Republicans in the Utah Legislature have had a supermajority since 1992. This supermajority of Republicans in both state Houses is surprising, since only 45% of the voters are declared Republicans. Unaffiliated declared voters are 37% and only 13% are Democrats, according to<span class="apple-converted-space"> </span><span class="MsoHyperlink" style="color: blue; text-decoration: underline;"><span style="color: #0093ce;">www.elections.utah.go</span></span>v. Hence it is more likely that voters in Utah are driven by their conservative ideology and political spin on policy stands, rather than by party affiliation.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">Alexander Field states in the December, 2017 Journal of Economic Literature, “ An ideology is an integrated system of belief about how the world should be, how the world is, and how new evidence about the state should be interpreted and used.” Note, ideology clouds independent judgment since it is subject to an ideological interpretation of facts and logic.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">Hence, elected by ideology, Utah legislators know that their status is secured. Therefore they were emboldened to change the voters’ recently passed propositions on Medicaid and medical marijuana. The changes will reduce the expansion of Medicaid, thus depriving health care benefits to thousands of Utahns. The state monopoly in medical marijuana will create barriers to entry in production resulting in higher prices. This is the cost voters will pay for electing people on ideological grounds and making ill-informed decisions on politicians.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">Nationally, the most alarming fact is that voters who suffer the most from unfavorable economic policies have the lowest voting record. Voting percentages increase with education and income. Blacks and Hispanics have lower percentages than non-Hispanic whites. Young voters (18-29 years of age) vote less than voters of age 45 years and older, according to the Census Bureau. US.. government economic policies reflect this tilt in voting patterns, favoring older, wealthy and white voters.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">Most voters old and young, low income and middle class, complain about wealth and income inequality. However, despite promises, the 2017 tax cut primarily benefited corporations and the rich. The research by Professors Emmanuel Saez and Gabriel Zucman, reported by David Leonhardt of The New York Times, shows that the richest 400 households paid less average tax rate (23%) in 2017 as compared to 1950 (70%) and 1980 (47%). The middle class and poor barely benefited from the tax cut.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">Trade policies of the current administration are also economically detrimental to small farmers and workers in the industrial belt, most of whom voted for President Donald Trump. The Republican majority in the Senate and President Trump have also tried to dismantle the Affordable Care Act (Obamacare), that primarily provides health care benefits to lower income Americans. Voting also affects the choice of politicians who, for example, care about preservation of national parks, cleaner environment and policies to deal with climate change, skills training for unemployed workers, housing affordability and assistance in paying college debt.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">Only 63.3% of women voters voted in the 2016 election (the same as in 2012). It did not help their causes dealing with child-bearing rights, childcare, early childhood education, parental leave and real income security. Randall Akee and other coauthors in the March 2018 American Economic Review find that an increase in household income has significant effect on children’s personality traits, emotional well-being, behavioral health, educational attainment and other beneficial adult outcomes.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">Voters’ apathy by not voting or by ill-informed voting causes perils for democracy also, because policy decisions are made to please donors and partisans driven by their agenda and/or ideology. Democracy promotes economic stability, as Dan Rodrik finds in his study published in the American Economic Review in May 2000. Economic stability is vital for economic growth, employment, and the vitality of financial and labor markets. We are witnessing this instability in the Trump administration and its adverse consequences.<o:p></o:p></span></div>
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<span style="color: #444444; font-size: 14pt;">American voters must get over their excuses for not voting or for ill-informed voting. Voting by the missing one-third of voters and better informed voters could change things like registration barriers, gerrymandering, placement of voting facilities and voting days; complaints will not resolve such issues. As Louis L’Amour states, “ To make democracy work, we must be a nation of participants, not simply observers. One who does not vote has no right to complain.”<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Cambria; font-size: 14pt;"><i>Mathur is former chairman and professor of Economics, Department of Economics, Cleveland State University, Cleveland, OH. This article was published as opinion piece in the Standard Examiner, October, 31, 2019, Ogden, UT.</i></span>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-7726980616102241942019-11-06T15:18:00.002-08:002019-11-06T15:18:48.797-08:00Escalating Drug Prices and Patent System AbuseVijay K. Mathur<br />
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">High drug prices in the U.S. significantly contribute to the high cost of health care and health insurance.<span class="apple-converted-space"> </span><span class="MsoHyperlink" style="color: blue; text-decoration: underline;"><span style="color: #0093ce;">Rand Corporation</span></span> found that in 2016 Americans spent $10,300 per person on health care, and 17% of that was on drugs. The U.S. has 5% of the world’s population but spends half of the total world expenditure on drugs. Such expenditure increase will lead to serious disruption in the health care system and in Americans’ lives.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">The latest state data for 2014 shows that Utahns spent $784 per capita on prescription drugs and medical nondurables (PD&MN), one of the lowest amounts among states (Kaiser Family Foundation). That is 33% of the total per capita spending on health care, much larger than in some Scandinavian countries. However, using average growth rate of 1.8% per year for the decade 2004-2014, the 2014 per capita expenditure on PD&MN in Utah would increase to $857 in 2019.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">The claim, by Budget Director Mick Mulvaney, that drug prices have fallen for the first time in 50 years is erroneous. The use of pharmaceutical drugs data from the Consumer Price Index is very unreliable, according to the National Bureau of Economic Research. In fact, the list prices of more than 3,000 drugs increased, and they decreased for only 117 drugs as cited by KFF on April 7, 2019.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Drug companies argue that the development of drugs is risky; 90% of drugs in clinical trials fail according to the Rand study. However, even though development of many new products is risky, industry R&D costs are exaggerated. In addition, risk is the hallmark of any innovation, development and market acceptance of resulting products. Moreover, Bloomberg in January 2015 ranked the U.S. sixth in innovation from the top after South Korea, Japan, Germany, Finland and Israel, countries with lower drug prices. Partly it reflects lower spending on R&D as a percent of the gross domestic product.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Patents provide incentives for innovations and risks involved in the development of drugs. Professors Adam Jaffe and Josh Lerner report in their book, "Innovation and its Discontents," that the modern patent system has existed since 1836, when it extended the 14-year term of the 1790 Act by seven more years. However, since 1995 patent law provides 20 years of protection from the time of filing the application. But it has many loopholes.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Deep-pocketed companies engage in lawsuits to block generic drugs competition or buy generic drug makers to suppress the promotion of generics and maintain their patented drugs monopoly. Robert Posen, Harvard Business School lecturer, suggested that innovations and granting of patents should be sped up by hiring more experts and adopting the “first to file” rule for the applications, rather than wasting time discovering who first came up with the idea. Also, “first to file” rule will reduce frivolous and costly lawsuits since the patent office will decide the first filing date. Granting extensions should be rare.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">“Cross licensing”, where companies agree to license their patents to each other as a device to expedite innovation, has outlived its usefulness. It depresses competition by blocking entry, especially of new startups. Small companies face threats of expensive infringement lawsuits or unwillingness of large companies to enter “cross-licensing” agreements or face substantial royalties in any agreement, thus thwarting competition and increasing prices.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">On June 10, Bloomberg Business Week reported that American drug companies Merck & Co and Bristol-Myers Squibb are facing stiff competition in prices in China from some Chinese companies that have patented their drugs to treat the same health conditions. For example, the drug Tuoyi by Shanghai Junshi Biosciences Co. to treat melanoma (skin cancer), sells for 1/3 less than the price for Merck’s drug Keytruda in China. Allowing importation of drugs and Medicare to negotiate lower drug prices to counter monopoly power will also deescalate prices in general.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;">Professors Jaffe and Lerner cogently state, “Thus, the patent system — intended to foster and protect innovation — is generating waste and uncertainty that hinders and threatens the innovative process.” I might add that it also destroys competition.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 14pt;"><i>Mathur is former chairman and Professor of Economics, Department of Economics, Cleveland State University, Cleveland, Ohio. This opinion piece was published in Standard Examiner, August 23, 2019, Ogden, UT.</i></span><br />
<br />Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-24198059600748989112019-11-06T15:07:00.001-08:002019-11-06T15:20:18.473-08:00The American Dream and happiness in America<div style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27pt; margin: 0in 0in 0.0001pt;">
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">Recent research on Americans’ well-being and happiness is finding that the American dream is fading. These findings are at odds with some in the media parroting the current administration’s and its sympathizers’ announcements that the economy is very healthy with plentiful jobs, better than in past decades.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">This apparent conflict between the macro data and the personal lives and perceptions of Americans about their well-being can only be understood if one looks beyond the macro data on unemployment and growth rates. For example, if businesses in Utah advertise for 100 job openings for part-time work and single moms fill those jobs at minimum wages and no benefits, the unemployment rate will drop. However, those single moms will not be very happy with their lives, especially when they have small children to support.</span></div>
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">The 2019 World Happiness Report (WHR) uses Gallop World Poll from 2016-2018 to rank countries on a happiness measure. This survey uses a measure, “life evaluations”, where people in a country’s population are asked to put the status of their lives on a ladder with zero to 10 steps, where zero is the worst and 10 is the best. Each country is ranked based upon the average score from the survey for the measure “life evaluations”. Six variables, per capita GDP, social support, healthy life expectancy, freedom, generosity and absence of corruption, are used to explain the overall average score. The U.S. ranks 19 from the top out of 154 countries for the period 2016-2018.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">The U.S. ranking has been declining over a period of time since the first WHR in 2012. The survey also collected data on positive affects and negative affects. Positive affects represent an average of previous day for happiness, laughter and enjoyment over the survey waves from three to seven years, and negative affects represent an average of previous day of worry, sadness and anger over the period of time. The U.S. ranks 35 on positive and 70 on negative affects from the top out of 156 countries.</span></div>
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">A review essay by Davis Blanchflower and Andrew Oswald (BO) in “Journal of Economic Literature,” from June 2019, fills up some gaps on the overall happiness status of Americans. The authors present research findings of Carol Graham of Brookings Institution and draw certain other conclusions based on their data. Graham finds that mental well-being has become more unequal; Americans are suffering from lack of hope and are less optimistic; the poor have more stress, pain and lower life satisfaction as compared to the rich; Americans have lost confidence and hope for upward social mobility.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">In addition BO find that Americans are facing psychological difficulties in mid-life. White Americans are less happy than black Americans despite wide financial gap between whites and blacks during 1972-2016. There is lower financial satisfaction and happiness among less educated. Depression, anxiety and suicide are more prevalent among whites than blacks. High-income inequality contributes to low life satisfactions.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">Utah is one of the happiest states in the U.S. with a ranking of No. 2 from the top, even though it has a drug overdose death rate higher than the U.S. rate (www.druguse.gov) and one of the highest suicide rates (www.cgc.gov) among states in 2017. Some of the factors contributing to high overall happiness ranking are fewest working hours, high-income growth, low divorce rate and high level of safety.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">The economic uncertainty among Americans plays a very dominant role in hope, life satisfactions, confidence and optimism. A June 2019 survey of a sample of 1116 adults, by AP NORC center and University of Chicago, finds that fewer adults have confidence in their ability to retire or pay an unexpected expense of $1,000. A quarter of adults do not have enough income to meet expenses. Economic opportunities are not widely shared. The American dream is becoming more distant for an increasing proportion of Americans.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">Professor Angus Deaton, Nobel Prize winner in economics, appropriately states in his book, “The Great Escape,” “There is much to be said for equality of opportunity, and for not penalizing people for the success that comes from their own hard work. Yet, with other rich countries, and in spite of the popular belief in the American dream that anyone can succeed, the United States is in fact not particularly good at actually delivering equal opportunities.”<o:p></o:p></span></div>
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<i><span style="color: #444444; font-family: "helvetica"; font-size: 14pt;">Mathur is former chairman and professor of Economics, Department of Economics, Cleveland State University, Cleveland, OH. It was published as opinion article in Standard Examiner, July 23, 2019, Ogden, UT.</span></i>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-23860311002628878222019-06-24T14:36:00.002-07:002019-06-24T14:36:58.966-07:00Health capital is as valuable asset as human capital<div style="line-height: 20.7pt; margin: 0in 0in 0.0001pt;">
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<em style="font-size: 10pt;"><span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">“Physical fitness is not only one of the most important keys to a healthy body, it is the basis of dynamic and creative intellectual activity.”</span></em></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">Let me first clarify the word capital in the current context. Capital goods such as machines, tools and buildings are durable goods that last for some time in production. Specifically, physical capital is a produced means of production that increases productivity and profits to the employer for a period of time. It does require maintenance due to wear and tear, and it depreciates in value over a period of time. Financial capital is not a direct input in production, but it is used to produce physical capital.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">Human capital is accumulated by investment just like physical capital, and once it is embodied in raw labor it increases labor’s productivity, thus producing rewards to the employer and employee over his/her lifetime. In addition, human capital in knowledge workers has spillover effects. In other words, an employee’s human capital not only benefits him or her in terms of high productivity and wage earnings but also benefits other employees who come into contact with the educated and knowledge employee. That is why “Silicon Valley” in California and “Silicon Slopes” in Utah attract knowledge workers. In the presence of spillovers of ideas and knowledge, workers self-interest would dictate under-investment in the acquisition of their education. Therefore, public financing of education is required to fill the gap.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">Just like human and physical capital, heath capital is a durable good. Professor Michael Grossman, in the Journal of Political Economy, argues that health capital stock can be increased by investment, but increase in its price will reduce its quantity. This implies that disinvestment in health will decumulate health capital. Health is a multidimensional input embodied in raw labor and/or human capital. It not only increases productivity but also contributes to the person’s wellbeing and longevity.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">A healthy labor force would be more productive than a labor force in poor health. Centers of Disease Control and Prevention (CDC), in 2016, found that stress is the leading cause of workplace health problems and the primary cause of occupational risk. Productivity loss from missed work costs employers $225.8 billion and $1,685 per employee per year. There is increasing evidence of job stressors contributing to depression. According to<span class="apple-converted-space"> </span></span><a href="http://ibis.health.utah.gov/" style="color: purple;"><span style="color: #0093ce; font-family: Helvetica; font-size: 12.5pt;">ibis.health.utah.gov</span></a><span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">, Utah had a greater age-adjusted depression in percentages of adults than the U.S. in all the years from 2011 to 2017.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">Poor health not only reduces well-being and longevity of individuals, but it also costs the rest of society due to the loss in productivity and growth. It is well established that free choice of some in not preventing communicable diseases such as measles, mumps and rubela adversely affects others’ free choice of being free from these diseases.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">Hence, in the presence of deleterious spillovers there is a need for public funding and regulation to prevent such diseases. A similar argument can be made for non-communicable poor health conditions. Poor health of workers affects productivity of individual workers and human capital, and it also adversely affects productivity of others in the workplace teams. Hence, investment in health capital by both private sector and government financing is needed to fill the gap in underinvestment in health capital by the private sector.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">Ironically the state of Utah, concerned about growth, has been very reluctant to spend public funds to promote health capital, as evidenced by reduced funding for Medicaid. Health capital and human capital are complementary means of production. One cannot expect more productivity from human capital and its robust spillover effects without effective health capital.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">Another line of research, reported by D. Almond, J. Currie and V. Duque in the Journal of Economic Literature in December 2018, further strengthens the case of partnership between public and private sector financing to promote health capital. This research on fetal origins hypothesis (FOH) basically establishes, for example, that parental nutritional deprivation, lack of medical care and lower income results in lower birth weight, chronic health conditions in adulthood and non-health outcomes such as low test scores, adults’ schooling attainment and wages.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 12.5pt;">Hopefully, decision makers in the private sector and governments recognize that more health capital not only benefits individuals but also society as a whole. Hence, health capital also deserves the same attention as human capital. We cannot succeed in reaping the fruits of increasing human capital without increasing health capital.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica; font-size: 10.5pt;">Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, Ohio.</span>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-5643097377554825702019-06-24T14:06:00.000-07:002019-06-24T14:14:11.529-07:00“Fear Mongering” Socialism Is as Offensive as “Crony Capitalism” to Many Americans <div class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;">
<i><span style="font-size: 14pt;">The political equality that is required by democracy is always under threat from economic inequality, and the more extreme the economic inequality, the greater the threat to democracy.<o:p></o:p></span></i></div>
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<i><span style="font-size: 14pt;">Angus Deaton, 2015 Nobel Prize winner in Economics<o:p></o:p></span></i></div>
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<span style="font-size: 14pt;">The ideas of democratic socialism, popularized by Senator Bernie Sanders in 2016, have entered the current political thought of Democratic candidates for president in 2020 and in the media. President Trump and GOP political leaders have even started scare mongering the ideas of democratic socialism, without much understanding of the difference between socialism, democratic socialism and communism. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Many GOP leaders, including President Trump and Utah’s Rep. Chris Stewart (founder of Anti-Socialism Caucus in the House) tend to paint socialism, communism and democratic socialism with the same brush. Perhaps their intent is to further aggravate the ideological divide between Americans and dissuade them from their major economic concerns about the crony capitalism that, with government assistance, is gradually subverting the private enterprise system. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Socialism involves collective ownership of government, abolition of private property rights, private enterprise and competition in markets, and a centrally planned economy. The central planning body decides what would be produced and consumed at regulated prices, and the distribution of income. Communism is an extreme form of socialism, a tyrannical system where a small group/or groups control government and businesses. China under Mao Zedong and the former Soviet Union under Joseph Stalin had extreme forms of communism, close to totalitarianism. Now China and Russia are still communist states with limited individual freedom. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Most Americans are not hankering for either socialism or communism. However, they are concerned about the recent drift of capitalism and the free market system toward crony capitalism. Crony capitalism, labeled as rent seeking behavior by economists, has some elements of communism. A small group of wealthy people and corporations influence government policies and subvert the free market system with government assistance that benefits them more, at the cost of the rest of the Americans.<o:p></o:p></span></div>
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<span style="font-size: 14pt;">Nobel Laureate economist Joseph Stiglitz explains in <i>Price of Inequality</i>, “Rent seeking takes many forms: hidden and open transfers and subsidies from the government, laws that make the marketplace less competitive, lax enforcement of existing competition laws, and statutes that allow corporations to take advantage of others or pass costs on to the rest of the society.” Pharmaceutical industry spent $280 million on lobbying in 2017 (statista.com). Purdue Pharmaceutical (owned by Sackler family) earned enormous profits by lobbying FDA in 2001 that allowed labeling OxyContin for long-term use without scientific evidence (“60 minutes”, CBS, February, 24, 2019). <o:p></o:p></span></div>
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<span style="font-size: 14pt;">In the Utah legislature, bill HB267 failed to pass due to lobbying and legal threats by the pharmaceutical industry. Its goal was to control escalating drug prices by allowing competition from imports from Canada. Also. An Institute of Taxation and Economic Policy study (May 10, 2017) found that 240 Fortune 500 companies in Utah used state corporate tax loopholes to avoid paying $126 billion in taxes from 2008-15. Rent seeking behavior is as offensive as socialism to most Americans. Political influence peddling by wealthy people and/or corporations to enrich themselves is partly responsible for increasing political as well as income and wealth inequality. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Democratic Socialists believe in democracy and the First Amendment. They want ordinary people, rather the wealthy people and corporations, to have power in the formulation of government policies. A Democratic Socialist Michael Harrington, who died in 1989, inspired President Lyndon Johnson’s poverty program. Scandinavian countries such as Norway, Belgium, Sweden and Denmark are democratic socialist countries. After 1991 Sweden is less socialist than others. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Polls indicate that most Americans like some elements of democratic socialism, such as universal health care, increase in minimum wage, reduced burden of education debt, affordability of higher education and more economic opportunities. However they are not sure about the means to achieve those ends. Senator Bernie Sander’s answer, the Scandinavian countries can do it so we can do it as well, is not satisfactory in the American context. It lacks substance. Senator Elizabeth Warren’s proposal of a wealth tax to finance her agenda is also very tenuous. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Nobel Laureate economist F.A. Hayek, an ardent critic of socialism, argued in <i>The Road to Serfdom</i>that “The dispute about socialism has thus become largely a dispute about means and not about ends…” and about the impracticality of simultaneous attainment of all ends of socialism. Convincing most Americans of the ideals of democratic socialism requires rooting out crony capitalism, empowerment of all Americans in the enactment of government policies beneficial to all and promoting a vibrant and thriving competitive private enterprise system. <o:p></o:p></span></div>
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<i style="font-family: -webkit-standard;"><span style="font-family: "cambria"; font-size: 14pt;">Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, Ohio. He blogs at mathursblogonomics.blogspot.cpm.</span></i><span style="font-family: -webkit-standard;"></span></div>
Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-64263802499916914712019-01-16T14:40:00.000-08:002019-01-16T14:40:17.219-08:00How well off are Americans and Utahns in this booming economy?<div class="MsoNormal" style="font-family: "Times New Roman"; margin: 0.1pt 0in;">
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<span style="color: #444444; font-family: Helvetica;">The Great Recession of 2007-2008 was the most severe recession in the recorded history of recessions. The unemployment rate increased from 5 percent in 2007 to 9.5 percent at the end of the recession. According to the study by Hillary Homes, Douglas Miller and Jessamyn Schaller, in the Journal of Economic Perspectives, Summer 2012, this recession was the longest lasting recession on record.</span></div>
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<span style="color: #444444; font-family: Helvetica;">Since the Great Recession, differing from other recessions, minority groups, youths and lower educated low wage groups have not fully regained the wages they enjoyed prior to 2007. Middle class wages are shrinking. Hence, the scenario of the economic boom is murky at best, since the boom is not filtering down to low and middle-income groups.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">In the post Great Recession era we are facing the lowest official national unemployment and growth rates, and Utah has an even lower unemployment rate than the US rate of 3.7 percent. However, the Bureau of Labor Statistics (BLS) measures six categories of unemployment rates from U1to U6, labeled as underutilization rates. The official low rate U3 is not indicative of the general well-being when there are more discouraged, part time and contract workers (included in U6). From the fourth quarter of 2017 to the third quarter of 2018 this rate was 7.8 percent in the US and 6.1 percent in Utah. These rates represent very high underutilization rates of workers and loss of potential output capacity.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">Employment statistics could also be misleading. A person is employed if he or she did any work for pay or profit during the survey week, or who did 15 hours of unpaid work for business or farm operated by a family with whom he or she lives or is temporarily absent from work. According to the Economic Policy Institute (EPI), March 1, 2018, even with the employment boom, attributed to the tax cuts of 2018, there is no investment boom and wage growth since the Great Recession. The wage gap between the top, middle and bottom of the income distribution has been increasing since 2000.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">Utah prides itself on one of the highest job growth rates and lowest unemployment rates in the US. However, 2018 Economic Report to the Governor (ERG) shows that Utah had the third highest ratio of non-working age population to working age population (18 to 64 years) in the nation. Median hourly wage in 2017 was $17.14 (BLS), much lower than the $24 living wage, and the annual slowdown in wage growth since 2015 is being eroded by inflation. The increase in homelessness, the same poverty rate in 2017 as in 2007, 52 percent of working families in the SNAP (food stamps) program (Center for Budget and Policies and Priorities, December, 2018), health insurance uncertainty and the demand for Medicaid expansion portray a non-participatory economy for many low to moderate-income Utahns.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">The decline of the middle class and increase in income inequality are worrisome signs. According to Pew Research Center, September 2018, in the US the middle of the middle-income group had approximately the same median income in 2016 as in 2000, however the upper tier of middle income lost more that the lower tier in 2016. Additionally, upward income mobility has declined, and even college graduates are uncertain about their future well-being, as they are burdened with $1.5 trillion college debt (see The Wall Street Journal, Dec. 11, 2018). It prevents them from starting families, home ownership, wealth mobility and secured retirement. In addition, the trade war, stagnant wage and income growth, projected lower economic growth, and high cost of health insurance are not optimistic signals.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">Ken Gardner Policy Institute (KGPI), October 2018, finds that since 1960 the middle class in Utah declined 2.8 percent by 2016. But lower bound middle class households had 55 percent higher income and upper bound middle class households had 48 percent lower income than in the US in 2016 (2017 dollar). Thus Utah has less income inequality among middle class groups than the U.S., a hopeful sign.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">The Economist, November 17, 2018, reports that there is a sense that capitalism is rigged to benefit owners of capital at the cost of workers, hence a 2016 survey shows that, “…more than half of young Americans no longer support capitalism.” This distrust is the result of accelerating income and wealth inequality since 1980s and the inaction of private and public power brokers.<o:p></o:p></span></div>
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<i><span style="color: #444444; font-family: Helvetica;">Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, OH. He blogs at </span></i><a href="http://mathursblogonomics.blogspot.com/"><i><span style="color: #428bca; font-family: Helvetica;">mathursblogonomics.blogspot.com</span></i></a><i><span style="color: #444444; font-family: Helvetica; font-size: 14pt;"><o:p></o:p></span></i></div>
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<i><span style="color: #333333; font-family: Helvetica;">Published in Standard Examiner, Ogden, Utah, January 8, 2019</span></i>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-10541169052489023752018-12-28T14:46:00.001-08:002018-12-28T14:53:14.032-08:00Persistence of gender wage gap<div class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 100pt 0.0001pt 0in;">
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<span style="color: #333333; font-family: "helvetica"; font-size: 14pt;">By Vijay K. Mathur</span><span style="color: #333333; font-family: "helvetica"; font-size: 14pt;"><o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">“#Me Too” movement has drawn attention to the mistreatment, harassment, and sexual assault of women in general and in the workplace. However, it has also rekindled the controversy of wage earnings discrimination against women in the workplace, even though the gap has narrowed since 1955.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">In the U.S. for full-time work (35 hours or more), women annually earned 60 percent in 1955, 79 percent in 2010 and 83 percent in 2014 as compared to men, according to Francine Blau and Lawrence Kahn, J of Economic Literature, in September 2017. This gap has remained almost unchanged in 2018. It is narrower between black women and black men as opposed to white women and white men. In Utah the gap is worse (ranking 49th in the nation). What explains the persistence of wage earnings gap and its slow down since the 1980s?<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">Wage earnings gap will arise if women have skills associated with low-wage occupations. For example, a Utah Women and Leadership Project study from December 2016 finds that more than 40 percent of Utah women work in two occupational groups with income gaps ranging from 14 percent to 59 percent from the average for all professions in the state ($31,446). Women in Utah have lower participation rates in higher paid occupations, such as construction and extractive industry, installation, maintenance and repair, and architecture and engineering.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">As compared to other countries, the U.S. has a higher wage gap between lower and higher skills. Thus it creates a greater wage gap in the U.S. since women are concentrated in lower-skilled occupations. The paradox is that in Utah men and women have almost the same levels of education, at the associate and the bachelor’s degree levels, but still have one of the worst earnings gap. Studies show that even though women have made much progress in entering higher paid occupations, they still lag behind men in occupations requiring skills in math, science, engineering and finance.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">What about the earnings gap within the same occupations, with the same education and experience? It could be due to attributes, such as experience, turnover, absenteeism and part-time work. As the study by Blau and Kahn shows, even though experience in general has narrowed nationally between men and women, the above characteristics could lead to less specific training and experience in particular occupations, lower productivity and hence lower wages. Such factors matter more for women who face the problem of balancing work and family (more so in Utah due to large family size).<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">The report, Workplace Gender Gap in the Oct. 23, 2018 Wall Street Journal, finds that aside from experiencing harassment in technical and senior management positions, the share of women decreases at every step of the management ladder. Their share in industries, such as health care systems, retail, banking and consumer finance, tech and software, and engineering, declines at each level of senior positions as compared to their share at the entry level.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">“#Me Too” movement has made business executives aware of the discrimination against women in the workplace. This movement has also made women realize their self-worth and made them more assertive in demanding equal treatment in the workplace. However, as WSJ reports, women CEO-founders of companies with less than $15 million of investor financing pay themselves less compensation than men, mainly due to the shortage of financial support by venture capitalists.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">Evidence cannot discount discrimination against women in hiring, pay, promotion, and lack of mentoring and other support structure in the labor market. According to McKinsey study for US News and World Report, 2018, Utah ranks second from the top in the economy’s performance and third from the top in education, but ranks 35th from the top in opportunity. Hopefully, senior executives in businesses and institutions will realize the loss of economic wealth to the nation if women’s potential is not fully recognized and utilized.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: "helvetica";">According to philosopher John Rawls’ concept of justice, in the meritocratic system of the free market, the distribution of income and wealth is just, “only if everyone has the same opportunity to develop his or her own talents. Only if everyone begins at the same starting line … the winners of the race deserve their rewards.”<o:p></o:p></span></div>
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<i><span style="color: #444444; font-family: "helvetica";">Mathur is former chairman and professor of economics, emeritus, Department of Economics, Cleveland State University, Cleveland, OH.<o:p></o:p></span></i></div>
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<i><span style="color: #444444; font-family: "helvetica";">Standard Examiner, November 15, 2018, Ogden, Utah</span></i>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-1947867358388444202018-10-07T13:51:00.000-07:002018-10-07T13:51:29.313-07:00Gasoline tax vs. Carbon tax in Utah: An evaluation<div style="font-family: "Times New Roman"; font-size: 10pt; line-height: 27pt; margin: 0in 0in 0.0001pt;">
<span style="color: #444444; font-family: Helvetica;">Vijay K. Mathur</span></div>
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<span style="color: #444444; font-family: Helvetica;">In 2011 an attempt was made in the Utah senate to increase the gasoline tax, but it was voted down. Ballotpedia reports that in 2018 state tax on gasoline is 29.41 cents and federal tax is 18.4 cents, for a total tax of 47.81 cents per gallon. Since this tax started in 1923, it has grown at the rate of 3 percent per year. The Utah Legislature passed a law in 2015 that will automatically increase the tax yearly if average fuel price has risen (not to exceed 40 cents, based on “certain factors”).</span></div>
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<span style="color: #444444; font-family: Helvetica;">The gasoline tax issue has been resurrected again in Utah. “Schools Now”, pushing for a ballot measure for school funding in the November elections, agreed to a compromise with the legislature. The legislative resolution passed in 2018 puts the proposition of a 10 cents per gallon increase in the state gasoline taxes to finance roads and indirectly education on the November ballot; it is well established that consumers will bear the total burden of the tax increase. If passed, it is only advisory.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">The proposed increase in tax revenue will not be enough to meet the original aspirations of “Schools Now” to fund education. Using U.S. Department of Energy (DOE) data on gasoline consumption in 2016, my estimates show that 10 cents per gallon tax will increase additional tax revenue by $124.69 million in 2018, $127.18 million in 2019 and $129.73 million in 2020, assuming 2 percent growth in gasoline consumption based upon the population growth rate in Utah.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">Public education requires a large infusion of resources. Logically, road and education financing sources should be separated. Selective highway tolls is a more logical way to finance roads and highways, with the additional benefit of reduced congestion and pollution. The net effect of the price increase due to the gasoline tax of 10 cents per gallon, the growth in income and fuel-efficient motor transportation may result in smaller additional tax revenue to meet the needs for roads and education.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">The best tax, given the heavy carbon dioxide (CO2) air pollution in Utah, is the carbon tax. Since it is a broad-based tax, its burden is distributed among all activities, including vehicle transportation, that emit CO2. Therefore, it has a great potential to raise substantial amount of tax revenues and reduce CO2 at the same time.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">Clean air is a common property resource. Therefore, if any activity uses it as a waste repository it should pay the price for the resource. Air pollution due to CO2 emissions results in costly damages to industries and human beings. CO2 tax-price is the market-based solution. An emitter of CO2 will use the least cost strategy to control its emission, and at the same time it has a great potential raise revenues to finance publicly-supported activities such as education.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">Professor William Nordhaus of Yale reported, Economist Voice, September 2010, an optimum tax in 2015 prices between $12 and $25 per ton of CO2. It could be increased more if some of the revenue is used to decrease other market distortionary taxes, such as income tax that discourages work or a tax on savings that distorts capital accumulation. It could be adjusted by the inflation rate per year. In Utah annual CO2 emissions from automobiles alone are close to 5.38 million tons, according to the DOE, in 2018, assuming 2 percent growth in vehicles’ ownership since 2016. If appropriately implemented, the carbon tax would stimulate economic growth in Utah due to a cleaner environment.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">The carbon tax rate may require some flexibility for changes if CO2 were to be reduced by some targeted amount. Flexibility would reduce uncertainty in markets and hence mitigate some adverse affect of uncertainty on economic activity.<o:p></o:p></span></div>
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<span style="color: #444444; font-family: Helvetica;">In summary, the gas tax is narrowly focused and only indirectly addresses the issues of CO2 reductions, congestion on highways, and raises meager tax revenues. Besides other features outlined above, the CO2 tax distributes the burden of the tax, lessens the burden if accompanied by reduction of other distortionary taxes, improves efficiency in markets and raises substantial amount of revenues, even if it is only levied on fossil fuels that contribute more than 90 percent of CO2 emissions.<o:p></o:p></span></div>
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<i><span style="color: #444444; font-family: Helvetica;">Vijay Mathur is former chairman and professor of economics, emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio.</span></i><i><span style="color: #444444; font-family: Helvetica;"> He resides in Ogden, Utah.</span></i>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-79407479684619740702018-08-28T14:09:00.000-07:002018-08-28T14:22:13.851-07:00Intergenerational Poverty creates a Lasting Underclass<div class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;">
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<span style="font-size: 16pt;"> “<i>If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin.”<o:p></o:p></i></span></div>
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<span style="font-size: 16pt;">Charles Darwin, <i>The Voyage of the Beagle</i><o:p></o:p></span></div>
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<span style="font-size: 16pt;">The Johnson Administration’s efforts in the 60’s to eradicate poverty did not bear much fruit</span><span style="font-size: 14pt;">. </span><span style="font-size: 16pt;">Nationally, the poverty rate for all people as well as all families dropped significantly from 1960 to mid 70’s, but since then it has increased. The Utah Legislature enacted the Intergenerational Poverty Mitigation Act in 2012 with a broad outline of a plan of action for Utah. Weber County is also making a concerted effort to mitigate intergenerational poverty in the county. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">First, some concepts and facts related to poverty. The official poverty threshold money income is 3 times the inflation-adjusted cost of minimum food diet in 1963. Any family below the threshold income, adjusted for family size, composition and age of householder(s), is considered poor and eligible for public safety net programs’ benefits. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">This official poverty measure is imperfect, because it gives more weight only to food expenditure and lumps together other increasingly significant expenditures, such as housing, transportation, utilities and health care. The official measure also excludes non-cash benefits of many public safety-net programs. However, it is the one most used and reported in the <i>US Census</i>. The supplemental measure adjusted for other expenditures and benefits is used for policies to deal with other complex poverty-related issues. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">Utah has close to 2.2 children per family on the average. In 2016, according to the <i>US Census</i>, national poverty threshold income for a family of 4 with 2 children was $24,339, and for a family of 5 with 3 children it was $28,643. Using the official measure, Weber Country had 13.5% poverty rate for all families and 39% rate for families headed by single mothers with related children below18 years of age. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">According to the Utah Department of Workforce Services, intergenerational poverty is when families continue to be in the poverty status for two or more generations. The poverty situation, related to intergenerational income mobility, has not improved over decades. Stanford University professor Raj Chetty finds in his studies that upward income mobility is lowest in the US, as opposed to other developed countries, and it varies significantly across regions of the US. Even though the odds of upward income mobility in Utah are better than in most states, the recognition for improvement in intergenerational poverty in Utah and in Weber County is on the right track. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">To break the cycle of poverty public policy solutions require close cooperation of family and external institutions, such as schools, churches, and other non-profit institutions, with accountability at the public level and of others involved in implementing and carrying out policies. In a study in <i>Economic Inquiry</i>, July 2008, Nobel Laureate economist James Heckman reports that, aside from many factors in human development, wages in adult life depend both on cognitive abilities (ability to reason and conduct analysis) and non-cognitive abilities (perseverance, motivation, self control, self-esteem and preference for risk aversion) learned in childhood. Emphasis on tests in schools that enhance cognitive skills are not enough for future economic success and reduction in social pathologies, such as crime, drug abuse, teenage pregnancies and smoking. Family environment with adequate income and early childhood intervention is a significant predictor of these abilities and future success. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">Public and private institutions must provide resources to poor families for early childhood education, parental education for raising children, and marketable technical and behavioral job-skills to non-working poor for employment to reduce the dependency on public assistance. Then, the working poor would qualify for EITC (Earned Income Tax Credit). ETIC is the most successful program to boost incomes of low-income working families and reduce poverty rates. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">Studies show the school performance of disadvantaged children improved the most due to EITC. To incentivize work, the state should also have income-based programs for child care for working families. A mentoring program for children would fill parental gaps in adult supervision, support and guidance. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">Policy focus should be on the family and early intervention for disadvantaged children. Professor Heckman states, “ The family plays a powerful role in shaping adult outcomes that is not fully appreciated by current American policies.”<o:p></o:p></span></div>
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<span style="font-family: "Times New Roman"; font-size: 16pt;"><i>Mathur is former </i></span><span style="font-family: Times New Roman;"><span style="font-size: 21.33333396911621px;"><i>chair and professor of economics and now</i></span></span><span style="font-family: "Times New Roman"; font-size: 16pt;"><i> professor emeritus, Department of Economics, Cleveland State University, Cleveland, OH. He resides in Ogden, UT. <o:p></o:p></i></span></div>
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<b><i><span style="font-family: Cambria; font-size: 16pt;">Published in The Salt Lake Tribune, Opinion, July 22, 2018, www.SLTRIB.Com</span></i></b>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-35592370916663685802018-06-20T12:38:00.000-07:002018-06-20T12:38:06.086-07:00Preventing Youth Suicide Requires Active Parental Involvement<div class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;">
<span style="font-size: 16pt;">Vijay K. Mathur<o:p></o:p></span></div>
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<i><span style="font-size: 16pt;">“Everything depends upon upbringing”.<o:p></o:p></span></i></div>
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<span style="font-size: 16pt;">Leo Tolstoy<o:p></o:p></span></div>
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<span style="font-size: 16pt;">Young adults in Utah and throughout the US are increasingly suffering from social pathologies such as drug abuse, depression, suicide and/or suicidal thoughts. <i>The Salt Lake Tribune</i>, April 5, 2018, reported on a CDC study, finding that during 2011- 2015 the Utah suicide rate doubled, “growing four times faster annually than the national average.” News reports show that suicides among teens at Harriman High School have reached crisis level. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">Henry J. Kaiser Family Foundation reports that opioid use deaths in Utah from the age of 0-24 years increased from 2014 to 2016. Utah Department of Health reports that suicide rate among Utah youth aged 10 to 17 exceed US rate since 1999, is the leading cause of death and has been increasing since 2007.<o:p></o:p></span></div>
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<span style="font-size: 16pt;">School authorities, teachers, health and psychological experts are in a quandary about how to get a handle on these pathologies. Since a large percentage of suicides are committed with the use of firearms, CDC blames easy access to firearms. But access to firearms does not address preventive causes of suicide. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">I recognize that there are various causes of stress and depression among young adults and the resultant tendency to commit suicide. However, the most important factor that is lost in the discussion, that gets only cursory attention from experts and policy makers, is the role parents play in the lives of their children. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">Numerous studies find a very significant role of parents in the emotional well being of their children. T. Holms and R. Rahe reported in their study in the <i>Journal of Psychosomatic Research</i>(1967), that out of 10 stressors on a psychological stress test for young people, 8 are parent related. Parental attention for the emotional well being of children requires parental time. When both parents are working or a single mother has to work and raise the family, it becomes all the more important to allocate scarce time efficiently to address stress and other emotional issues confronting their children.<o:p></o:p></span></div>
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<span style="font-size: 16pt;">A large scale study by F. Van Wel, H. Linssen and R. Abm in the <i>Journal of Youth Adolescence</i>(2000) found that parental bonding improves psychological well being, as measured by stress and suicidal thoughts, in a sample of 1688 Dutch adolescents /young adults from 12 to 24 years of age. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">I am sure parents love their children. However, bonding and parenting time must compliment love. Children should feel open and comfortable to unload their emotional stress on their parents as well as share their joyous moments, relationships with friends and other concerns.<o:p></o:p></span></div>
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<span style="font-size: 16pt;">The macro study by myself and Donald Freeman, <i>Health Economics</i>(2002), examined the role of income and parenting time in predicting adolescent suicide rates, using a sample of 48 states of the continental US from 1970-1997. This study used per capita wage income in the statistical analysis to explain adolescent suicide rates, after controlling for other contributing factors such as alcohol use, divorce rates, large family size and unemployment. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">Wage income affects youth suicide through two components. Increase in wage income of parents decreases suicide rates as it relieves some of the familial emotional stress associated with lack of income, but it also increases incentive to increase work time, hence decreasing parenting time. Lack of parenting time increases suicide rates. However, the good news is that the effect of income dominates the effect of parenting time on suicide; higher wage income and parenting time have positive social value.<o:p></o:p></span></div>
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<span style="font-size: 16pt;">Professor James Heckman argues in <i>Economic Inquiry</i>(2008), that parental attention to their children is necessary to develop cognitive (analytical) skills and non-cognitive skills such as self-esteem, motivation and self-control. Studies also show that more educated working mothers, as opposed to less educated, devote more time to childcare to develop cognitive and non-cognitive skills. <o:p></o:p></span></div>
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<span style="font-size: 16pt;">Thus income security with living wage to less educated and low-income parents matters for healthy family lifestyle. However, serious consideration must also be given to provide parenting skills to such families so that they are able to raise children with cognitive and non-cognitive skills. Churches, schools and other non-profit organizations could help. <o:p></o:p></span></div>
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<i><span style="font-family: Cambria; font-size: 16pt;">Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland State University, Cleveland, Ohio. He resides in Ogden, Utah.</span></i>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-21133167219640541872018-04-22T13:27:00.000-07:002018-04-22T13:27:17.542-07:00Rent Seeking Plutocrats Undermine Capitalism and Democracy<div class="MsoNormal" style="font-family: "Times New Roman"; margin: 0in 0in 0.0001pt;">
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<span style="font-size: 14pt;">Doubts are often raised about capitalism and its corollary free enterprise system. Karl Marx recognized that capitalism is one of the stages of development of a society. But he argued that capitalism would eventually end up with a class structure of bourgeoisie (capitalists) and proletariat (wage earners). Conflict of economic interest between these classes would breed the destruction of capitalism.<o:p></o:p></span></div>
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<span style="font-size: 14pt;">According to Martin Spechler in<i>Perspectives In Economic Thought</i>(1990) Marx theorized that, in the class conflict, the most important organization that supports the bourgeoisie is the state. Capitalists primarily accumulate capital by suppressing wages of the proletariat class. Reform and laws enacted by the state often popularized to benefit workers are mainly aimed at keeping capitalists’ control of the economic system. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">These arguments of Marx are prophetic. Any impartial observer of the US economy today would notice economic hardships of the middle and low income working class and enrichment of wealthy, many of whom are <b><i>rent seeking </i></b>plutocrats. Even though the concept of rent as surplus in the value of a factor of production in fixed supply was fully developed by English economist David Ricardo in 18<sup>th</sup>century England, it has now been generally applied to other activities, including political favors to lobbyists and their clients with deep pockets. Mercantilists in 18<sup>th</sup>century Europe used royal favors to gain economic benefits at the cost of the rest of the citizens. Following Mercantilist footsteps, rent seeking behavior in the current political context arises when any entity earns income or rewards from the political system without undertaking any productive effort. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Ideally in a democracy, all citizens are supposed to have the same political influence in the enactment of rules, regulations, and tax and expenditure policies. However, political inequality complemented by income inequality breeds a class of political elitists and rich plutocrats who have undue influence on the political system to gain more economic favors. These favors are called rents. Professor Joseph Stiglitz states that rents could also arise when businesses charge above market prices for products sold to government, monopolies charge prices higher than competitive market prices, and financial advisors and/or banks extract higher prices and commissions from those less informed about financial matters. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Let me provide a few examples of rents. The recent Congressional bill meant to lighten the regulatory burden of small banks under Dodd-Frank Act of 2010, after the Great Recession, will also end up increasing profitability of large banks, such as Bank of New York Mellon and State Street (<i>The Wall Street Journal</i>, March 15, 2018). Other examples are the use of tax breaks for land conservation by syndicated conservation easements (<i>The Wall Street Journal</i>, March, 15, 2018), reduction in the cost of pollution control of coal mining companies by relaxing environmental regulations and reducing the size of Bears Ears and Grand Staircase-Escalante National Monuments by the Trump administration for the benefit of oil, gas and uranium companies. <o:p></o:p></span></div>
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<i><span style="font-size: 14pt;">The Salt Lake Tribune (SLT)</span></i><span style="font-size: 14pt;">, January 22, 2018, reported that in Utah 92 percent of the money raised by legislators in 2017 came from special interest groups. The<i>SLT</i>, March17, 2018, also reported that </span>Utah<span style="font-size: 14pt;">Representative Mike Noel stands to reap substantial gains in the value of his land and water rights if he succeeds in his efforts in the construction of the taxpayer-funded 140-mile Lake Powell Pipeline, that brings Colorado River water to Southern Utah. It is also well known that Senator Orrin Hatch is a great benefactor of the pharmaceutical industry, as well as a receiver of large campaign contributions from that industry. It seems politicians at state and local levels are not immune to this behavior. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Government intervention is required if competition fails to regulate market forces in the provision of goods and services. However, it is problematic for the sustainable functioning of the private enterprise system and democracy when the government implements rules, regulations, tax, and expenditure laws to promote the economic interest of a minority of rent seeking wealthy capitalists. Historian Walter Scheidel cogently argues in <i>The Great Leveler</i>(2017), that historically states, usually monarchies, have always openly bestowed economic favors on the wealthy and even made them an integral part of their rule. History has repeated itself in the Trump administration. However, extreme income and wealth inequality with explicit or implicit support of the government, in a private enterprise system, cannot sustain a dynamic and vibrant private enterprise in a democracy in the long run. <o:p></o:p></span></div>
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<span style="font-size: 14pt;">Frustration of middle and lower income Americans with the loss of economic status, wealth, diminished hopes of future well being and lack of influence on the political system is not a recipe for a peaceful and thriving populist democracy. A survey in <i>The Wall Street Journal</i>, December 7, 2017, reveals increasing acceptance of socialism among Millennials. Hopefully, politicians pay attention to the economic plight of middle and lower income Americans for the preservation of capitalism, private enterprise and democracy.<o:p></o:p></span></div>
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<i><span style="font-family: Cambria; font-size: 14pt;">Mathur is former chair and professor of economics, now professor emeritus, Department of Economics, Cleveland State University, Cleveland, OH. He resides in Ogden.</span></i>Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-56515900898983989142018-01-21T13:58:00.001-08:002018-01-21T13:58:48.041-08:00Educational Divide, Emerging White Underclass and DesperationVijay K. Mathur<br />
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">On
January 13, 2016, I published a blog in <i style="mso-bidi-font-style: normal;">The
Huffington Post, </i>where I pointed out that an increasing proportion of
families and “their future generations” are ending up in the bottom of the
income distribution and hence are trapped in the cycle of poverty.<span style="mso-spacerun: yes;"> </span>Poverty rates vary among racial
groups.<span style="mso-spacerun: yes;"> </span>Blacks and Hispanics face
twice the poverty rates of Asians and Whites.<span style="mso-spacerun: yes;"> </span>In August 29, 1997, <i style="mso-bidi-font-style: normal;">Time
</i>magazine’s lead article termed poor Blacks as an Underclass, as they were
entrapped in the cycle of psychological and material deprivation even after 20
years of civil rights and anti-poverty programs.<o:p></o:p></span></div>
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Nobel
Laureate Economist Angus Deaton,</span><span style="font-size: 16.0pt; mso-bidi-font-size: 12.0pt;"> (</span><a href="http://knowledge.wharton.upenn.edu/article/despair-and-the-white-working-class/">http://knowledge.wharton.upenn.edu/article/despair-and-the-white-working-class/</a>,
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">in a conversation at <i style="mso-bidi-font-style: normal;">Knowledge@Wharton, April 6, 2017,</i> is
raising a similar issue, with a slightly different twist, pertaining to the
effect of material deprivation and lack of economic opportunities on working
class middle age White undereducated Americans.<span style="mso-spacerun: yes;"> </span>Most economists have also been pointing out that, in the
emerging technologically sophisticated economy, the role of higher education
and skills beyond high school will play a significant role in determining the
success of job seekers in the labor market and their economic well-being. <span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Professor
Deaton argues that the mortality rate among Non-Hispanic Whites in their early
50’s, <span style="mso-spacerun: yes;"> </span>“after 100 years of
declining had turned the wrong way or at least flattened out.”<span style="mso-spacerun: yes;"> </span>(<i style="mso-bidi-font-style: normal;">See
source above</i>).<span style="mso-spacerun: yes;"> </span>This is
happening to both men and women, and not to Hispanics and African-Americans,
and not in other rich countries.<span style="mso-spacerun: yes;">
</span>Most deaths are due to alcohol consumption, drug overdose and
suicides.<span style="mso-spacerun: yes;"> </span>Deaton has argued in his
book, <i style="mso-bidi-font-style: normal;">The Great Escape</i> (2013), that
well-being is primarily based upon income and health.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">In
this age of rapid technological change, job opportunities open up for those who
have acquired human capital that complements physical capital with advanced
technologies. <i style="mso-bidi-font-style: normal;">The Wall Street Journal</i>,
November 30, 2017, reports a study by <i style="mso-bidi-font-style: normal;">McKinsey
Global Institute</i> that predicts that around the world close to 375 million
workers, displaced by new technologies, will have to find new occupations by
2030.<span style="mso-spacerun: yes;"> </span>Public policy makers and
businesses have to equip workers with new skills and technical training to
minimize labor market disruptions of automation.<span style="mso-spacerun: yes;"> </span>The US is not alone in facing this challenge.<span style="mso-spacerun: yes;"> </span>In fact, even now, manufacturers in the
US have been complaining about the problem of finding technologically skilled
workers (<i style="mso-bidi-font-style: normal;">The Wall Street Journal</i>,
December 1, 2017). <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Those
with less education are facing desperate times in finding job opportunities
that will create a sense of income security and economic well-being.<span style="mso-spacerun: yes;"> </span>The Trump administration and Republican
Congressional members are derelict in providing sufficient support to Americans
who need new skills, job training and education to meet challenges of
automation in the labor market. <span style="mso-spacerun: yes;"> </span>Job
uncertainty, income insecurity and inadequate health care of this group of Americans
create a sense of anxiety, despair and depression compounded by the lack of
family ties, and public and community support.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>Unhealthy and
depressed workers cannot be productive members of society. <o:p></o:p></span></div>
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Deaton
argues in his book (p. 207) that despite the belief in the American dream, the US
is not<span style="mso-spacerun: yes;"> </span>“particularly good at
actually delivering equal opportunities.” This is supported by high correlation
between fathers’ earnings and sons’ earnings in the US, highest among OECD
countries of Europe and only lower than China and some Latin American
countries.<o:p></o:p></span></div>
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Deaton
states that this problem among Non-Hispanic Whites with low levels of education
has arisen due to “...a cumulative disadvantage over life in the labor market, in
marriage, in child outcomes and in health triggered by progressively worsening
labor opportunities at a time of entry…”<i style="mso-bidi-font-style: normal;">(See
source above</i>). <span style="mso-spacerun: yes;"> </span>A study by John
F. Helliwell and Hafang Huang (HH), <i style="mso-bidi-font-style: normal;">Economic
Enquiry</i>, October 2014, using subjective well-being (SWB) data covering life
evaluations and emotional experiences reports, finds that SWB increases with
income, education, and marriages, and diminishes with increase in unemployment
rates. Unemployment rate increase also affects emotional well-being of employed,
since it threatens workplace downsizing -- <span style="mso-spacerun: yes;"> </span>hence their job security.<span style="mso-spacerun: yes;"> </span>HH also find, for those who are employed, that a one percent
increase in unemployment rate is equivalent to a 4 percent decline in household
income.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">A
labor market that creates employment and occupational growth for skilled and highly
educated workers and dries up job opportunities, occupational growth and
economic well- being of less skilled and educated workers is bound to be
disruptive to households and the nation.<span style="mso-spacerun: yes;"> </span>It would also lead to increasing levels of income
inequality that we experience today in the US as opposed to other advanced
nations. And as Deaton would argue, income inequality is harmful to the nation
and its economic system when rent seeking (special favors from government by
lobbying) rich affect public policy that deprives lower income people of
services, such as education and health care to enrich themselves.<span style="mso-spacerun: yes;"> </span>In fact that is what the Congressional
Republican’s tax law will do. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
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<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">I
hope that the Trump administration and some Republican Congressmen will be bold
enough to realize that just enacting a tax law to make
a political point is not an achievement for the well-being of Americans<b style="mso-bidi-font-weight: normal;">.<o:p></o:p></b></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Enacting tax and spending
laws that benefit all current and future generations of Americans to meet challenges
of advanced technologies and competitive forces in the global market would be a
laudable legacy. <span style="mso-spacerun: yes;"> </span>As Justice Sonia
Sotomayor has stated, “Until we get equality in education, we won’t have an
equal society.” <o:p></o:p></span></b></div>
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<i><span style="font-family: Cambria; font-size: 14.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Cambria; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Mathur is former chair and
professor of economics, now professor emeritus, Department of Economics,
Cleveland State University, Cleveland, Ohio. He resides in Ogden, Utah.</span><span style="font-family: Cambria; font-size: 16.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Cambria; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> </span></i><!--EndFragment-->Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-79000867938287290212018-01-21T13:43:00.000-08:002018-01-21T13:43:03.628-08:00GOP Tax Policies in Shambles<div class="MsoNormal">
Vijay K. Mathur</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A
brief history informs us that GOP political identity is defined by their
political policy stand for tax cuts, with only lip service to reducing budget
deficits and national debt. The
Reagan administration cut taxes that primarily benefitted the rich, but the increasing
deficits forced the administration to pass tax increases.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
George
H.W. Bush stated “read my lips-no new taxes” in the GOP primaries, but gave up
on that promise due to the reality of more deficits.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>As president he
signed the budget deal to raise taxes.<span style="mso-spacerun: yes;">
</span>George W. Bush’s administration cut taxes in 2001 and 2003.<span style="mso-spacerun: yes;"> </span>However, more spending, low real growth
rate, rising unemployment rates, more deficits and debt, and the great recession
of 2007-08 did not accomplish what was promised.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The
GOP is obsessed with tax cuts as a policy tool to stimulate growth and
employment.<span style="mso-spacerun: yes;"> </span>And even though the
rhetoric of tax cuts is buttressed by high growth and claims of reduced budget
deficits, those claims seldom materialize. In addition, tax cut during times of economic expansion is counter to any economic logic. It makes it harder to implement any tax stimulant in case of economic downturns. But it seems logic of any kind escapes Republicans in the Congress. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In
the Trump administration there was a clarion call to reduce corporate and other taxes.<span style="mso-spacerun: yes;"> </span>The GOP marketing campaign to sell their tax plan as a
middle class tax cut was a sideshow without much tax benefit to middle class taxpayers.
<span style="mso-spacerun: yes;"> </span>GOP Congressmen emphasized that
corporate tax cuts will boost profits, investment, growth, employment and high
wages for the middle class. They are oblivious to the fact that, historically, economic
growth is declining over time despite reductions in corporate taxes. However, the Congress passed the tax cut under the "Tax Cuts and Jobs Act" with a slim majority. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Thomas
L. Hungerford of <i style="mso-bidi-font-style: normal;">Economic Policy
Institute (EPI)</i>, June 4, 2013, finds that during 1950-1960 annual average
economic growth was 3.9 percent when the statutory corporate tax rate was above
50 percent.<span style="mso-spacerun: yes;"> </span>However, during 2000-2010
statutory corporate tax rate was 35 percent while the annual average growth rate
was 1.8 percent. <span style="mso-spacerun: yes;"> </span>In fact, from
1948-2010 there is a positive relationship between higher real growth rates and
higher statutory corporate tax rates.<span style="mso-spacerun: yes;">
</span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
GOP
Congressmen are dreaming if they think that cutting statutory marginal tax rate
for corporations from 35 percent to 21 percent will create a flood of
repatriated profits to the US from tax havens, where tax rates are next to
nothing or much below the proposed rate.<span style="mso-spacerun: yes;">
</span>As <i style="mso-bidi-font-style: normal;">EPI</i> authors Josh Bivens and
Hunter Blair state, October 3, 2017, multinational corporations are waiting for
another tax holiday, such as in 2004, when they paid 5.25 percent on
repatriated profits.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There
is an emerging consensus among many experts, including <i style="mso-bidi-font-style: normal;">Congress’ Joint Committee on Taxation,</i> that the tax proposal favors the wealthy and rich over middle and low-income Americans.<span style="mso-spacerun: yes;"> </span>Even though the tax cut proposal
reduces tax brackets from 7 to 4 with generally lower marginal tax rates, it
either takes away or limits deductions for state and local taxes, mortgage
interest, property taxes and medical expenses.<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Aside
from the repeal of the estate tax, rich and very rich Americans, the tax law would benefit only certain businesses such as LLC's, S-corporations and partnerships with "pass through incomes.'' Pass -through incomes of businesses (close 40 million) are taxed at the individual tax rates than at the corporate tax rates. They could get close to 20 percent deductions in earnings. The law has made the tax for small businesses more complicated and confusing than before. It has also excluded certain business services from tax benefits. C-corporation do not gain much benefits. But the fact remains that tax cuts worsen income
distribution, already skewed toward the rich, and increase national debt. Therefore I propose that if Democrats are in the majority in the Congress they should make some major changes in the tax law that will benefit all
Americans. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I
propose the following:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
1.
To stimulate investment there should be targeted tax breaks for investment and
saving in 401(k) type plans for all Americans irrespective of their employment
status.<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;">The Economist</i>, July 29, 2017, reports on a study by German
Gutierrez and Thomas Philippon, that found reduced investment since 2000 is due
to an increase in business market power and decline of competition.<span style="mso-spacerun: yes;"> </span>Hence, tax breaks for investment must
be complemented by enhanced enforcement of Anti-Trust Laws.<o:p></o:p></div>
<div class="MsoNormal">
<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
In
addition, to encourage innovations and entrepreneurship a tax cut for small businesses that employ 100 employees or less should be much more than the tax cut for large corporations.<o:p></o:p></div>
<div class="MsoNormal">
<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
2.
Impose a carbon tax, and the revenue should be earmarked for infrastructure
investment.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
3.
Capital gains, dividends and carried interest (akin to capital gains) when
received should be treated as regular income for tax purposes.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
4. <span style="mso-spacerun: yes;"> </span>A progressive tax should be levied on
earnings of all Americans to finance Medicare and Social Security
programs.<span style="mso-spacerun: yes;"> </span>States should be
required to make a larger proportionate contribution to the Medicaid program.<span style="mso-spacerun: yes;"> </span>Abuses in the disability insurance
program must be prevented.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
5. Keep the new corporate tax rate and lower tax rates for small businesses but all tax expenditures, loopholes and subsidies for businesses must be taken away.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
These
are some suggestions that would benefit the country and all Americans and put
the budget deficits and national debt on a lower trajectory. <span style="mso-spacerun: yes;"> </span>Bob Bryan of <i style="mso-bidi-font-style: normal;">Business Insider</i>, November 6, 2017, states that Penn-Wharton model
predicts that the tax plan reduces Federal revenue by $1.75 trillion during the
first decade. <span style="mso-spacerun: yes;"> </span>In
addition, over 22 years the plan reduces tax revenue by $4.4 trillion, thus
contributing to substantial increase in national debt.<span style="mso-spacerun: yes;"> However, such predictions did not matter for the GOP in the Congress</span>.<span style="mso-spacerun: yes;">
</span><span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I
hope that GOP Representatives in the Congress start thinking about the country
first rather than about the next election.<span style="mso-spacerun: yes;"> </span>I also hope that they do not get the impression that all
Americans in the middle class and at lower income levels are ignorant of the
real intent of the Republicans in the Congress in passing the current tax law. The majority of Americans do not favor the new tax law. Hopefully they would express their dislike in their votes in the upcoming elections.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
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<i><span style="font-family: Cambria;">Mathur is former chair and
professor of economics, now professor emeritus, Department of Economics,
Cleveland State University, Cleveland, Ohio. He resides in Ogden, Utah.</span><span style="font-family: Cambria; font-size: 16.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Cambria; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> </span></i><!--EndFragment-->Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0tag:blogger.com,1999:blog-6472456946418174065.post-64770809632343201022017-09-23T15:37:00.000-07:002017-09-23T15:37:08.552-07:00Economic and Non-Economic Consequences of Economic GrowthVijay K. Mathur<br />
<br />
<br />
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Economic
growth in any country is the most well understood and significant index of the
economic wellbeing of the population.<span style="mso-spacerun: yes;">
</span>It is usually measured as the percentage change in the gross domestic
product (GDP). <span style="mso-spacerun: yes;"> </span>However, it
is not explicitly known to most that it may also spread a sense of happiness,
hopefulness and tolerance, hence a sense of cohesiveness among people.<span style="mso-spacerun: yes;"> </span>The divisiveness among people occurs
when there are winners and losers, and the winners are reluctant to provide
opportunities to losers to achieve a satisfying economic status and are self-centered
in pursuing their own economic gains, even at the cost to others. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Professor
Benjamin Friedman in his book “<i style="mso-bidi-font-style: normal;">The Moral
Consequences of Economic Growth</i>”, provides some thought- provoking insights
into the non-economic consequences of economic growth.<span style="mso-spacerun: yes;"> </span>He states, “The value of rising
standard of living lies not just in the concrete improvements it brings to how
individuals live but in how it shapes the social, political, and ultimately the
moral character of a people.” In his view, economic growth that lifts all boats
“…fosters greater opportunity, tolerance of diversity, social mobility,
commitment to fairness, and dedication to democracy”. <span style="mso-spacerun: yes;"> </span>These attributes are also the hallmark
of innovation and growth.<span style="mso-spacerun: yes;"> </span>Fear of
growth due to negative side effects of environmental damage, congestion and
diminished biodiversity are unwarranted, since growth provides more resources
to offset these effects.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">In
a winner and loser society, where winners are relatively better off and the
losers are relatively worse off against some benchmarks, economic and social
divisiveness among people increases and perception of fairness falters.<span style="mso-spacerun: yes;"> </span>Professor Friedman remarks, “ The
central question is whether, when people see that they are doing well (in other
words, enjoying ‘more’) compared to the benchmark of their own prior
experience, or their parents’ – or when they believe that their children ‘s
lives will be better still – they consequently feel less need to get ahead
compared to other people.” If most people perceive that they are worse off as
compared to these benchmarks, it creates a ripe environment for divisiveness, hostility
and intolerance to economically well-off groups and other competing groups.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>The opportunistic political leaders and their sympathizers
use this rift for their own political, social and economic ends. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">President
Trump constantly reminds his supporting base that winners, immigrants and
international trade are responsible for their plight.<span style="mso-spacerun: yes;"> </span>But, he is also telling them that he is working on policies
to stimulate economic growth. <span style="mso-spacerun: yes;"> </span>However, there are no visible signs of meaningful and
sustainable high growth policies.<span style="mso-spacerun: yes;">
</span>The economy is growing between the average annual rates of 2% to 3%, but
as compared to historical standards, it has not trickled down in significant wage
gains to workers severely affected by the deep economic recession of 2007-08. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<i style="mso-bidi-font-style: normal;"><span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">The Wall Street Journal,
August 24, 2017,</span></i><span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;"> reported that world wide economic growth has picked up and forecasts
for US are in the range of 2 to 3 percent per year. <span style="mso-spacerun: yes;"> </span>This US growth forecast will not improve the economic
predicament of most Americans in the lower rung of the income distribution
without substantive policy initiatives to stimulate productive investment in
human and physical capital and R&D. The Trump administration’s aspirations
for higher economic growth are incongruous with their regressive budget and tax
proposals and strategies to restrict international trade and immigration. <span style="mso-spacerun: yes;"> </span>Former Congressman Jack Kemp once
remarked,<span style="mso-spacerun: yes;"> </span><i style="mso-bidi-font-style: normal;">“<b style="mso-bidi-font-weight: normal;">Economic growth doesn’t mean
anything if it leaves people out.</b>” <span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></i><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">NAFTA
trade pact is in jeopardy since Mexico and Canada are not willing to agree with
the stringent concessions the Trump administration wants in the trade
agreement. <span style="mso-spacerun: yes;"> </span>The President has
already withdrawn from the <i style="mso-bidi-font-style: normal;">Trans Pacific
Partnership</i> trade pact with countries in South East Asia, a burgeoning
regional trade market.<span style="mso-spacerun: yes;">
</span>Restricting trade could prove to be a severe blow to economic growth.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">A
great source of unhappiness and divisiveness among the general population is
the increasing income and wealth gap. C.I. Jones of Stanford University shows
in his study on growth that, since 1980, GDP per person grew at the average
rate of 6.8% per year for the top 0.1%, while it grew at the rate of only 1.82%
per year for the bottom 99.9%, thus widening the income gap over time. <span style="mso-spacerun: yes;"> </span>This has created a perception of unfairness
and has led to general intolerance, especially fueled by the rhetoric of the President
against immigrants and so-called elites. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">The
increasing income gap is accompanied by an increasing wealth gap.<span style="mso-spacerun: yes;"> </span>The study by Daniel Carroll and
Nicholas Hoffman<i style="mso-bidi-font-style: normal;">,</i> <i style="mso-bidi-font-style: normal;">Economic Commentary</i>, <i style="mso-bidi-font-style: normal;">Cleveland FED</i>, <i style="mso-bidi-font-style: normal;">June 28, 2017</i>, finds that wealth mobility has also decreased over
the past three decades.<span style="mso-spacerun: yes;"> </span>On average,
household are more likely to stay within their wealth quintiles over a period
of 10 years than in the past two decades.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Some
claim that income inequality is essential for economic growth, but the evidence
for the US is at best murky.<span style="mso-spacerun: yes;"> </span>However,
evidence points out that any marginal growth effects of inequality may not be economically
beneficial to most people in the lower income distribution.<span style="mso-spacerun: yes;"> </span>Aspirations for high growth rates
and its trickle down effects in the Trump administration should be tempered by
the fact that during 1973-1995, 1995-2001 and 2001-2017 the average annual
growth rates of GDP per person were 1.82%, 2.17% and 1.72% respectively (see
C.I. Jones). <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 14.0pt; mso-bidi-font-size: 12.0pt;">Hopefully,
President Trump and his team recognize that in a slow growth economy policies
matter to make people feel economically secured, to bring harmony among people,
and to promote a healthy and vibrant society.<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"> </i></b><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
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<w:PunctuationKerning/>
<w:DrawingGridHorizontalSpacing>18 pt</w:DrawingGridHorizontalSpacing>
<w:DrawingGridVerticalSpacing>18 pt</w:DrawingGridVerticalSpacing>
<w:DisplayHorizontalDrawingGridEvery>0</w:DisplayHorizontalDrawingGridEvery>
<w:DisplayVerticalDrawingGridEvery>0</w:DisplayVerticalDrawingGridEvery>
<w:ValidateAgainstSchemas/>
<w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid>
<w:IgnoreMixedContent>false</w:IgnoreMixedContent>
<w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText>
<w:Compatibility>
<w:BreakWrappedTables/>
<w:DontGrowAutofit/>
<w:DontAutofitConstrainedTables/>
<w:DontVertAlignInTxbx/>
</w:Compatibility>
</w:WordDocument>
</xml><![endif]--><!--[if gte mso 9]><xml>
<w:LatentStyles DefLockedState="false" LatentStyleCount="276">
</w:LatentStyles>
</xml><![endif]-->
<!--[if gte mso 10]>
<style>
/* Style Definitions */
table.MsoNormalTable
{mso-style-name:"Table Normal";
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-parent:"";
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin:0in;
mso-para-margin-bottom:.0001pt;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:"Times New Roman";
mso-ascii-font-family:Cambria;
mso-ascii-theme-font:minor-latin;
mso-fareast-font-family:"Times New Roman";
mso-fareast-theme-font:minor-fareast;
mso-hansi-font-family:Cambria;
mso-hansi-theme-font:minor-latin;}
</style>
<![endif]-->
<!--StartFragment-->
<i><span style="font-family: Cambria; font-size: 14.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Cambria; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Mathur is former chair and
professor of economics, now professor emeritus, Department of Economics,
Cleveland State University, Cleveland, Ohio. He now lives in Ogden, Utah.</span><span style="font-family: Cambria; font-size: 16.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-font-size: 12.0pt; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Cambria; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> </span></i><!--EndFragment-->
Vijay K. Mathurhttp://www.blogger.com/profile/05146175259296297795noreply@blogger.com0