Macro Roundup

“…Those who believe the U.S. is an oligarchy often cite the research of political scientists Martin Gilens and Benjamin Page. In a 2014 paper, Gilens and Page measured correlations between policy outcomes and the preferences of various income groups. They found that policy was most highly correlated with the preferences of high earners. Some take this result as an indication that the rich have their way in U.S. politics, while the poor and middle class are voiceless. But there are many reasons to doubt that conclusion. First of all, the group that Gilens and Page label “affluent” are those making more than $146,000 a year. Although this takes in the billionaire class that socialists rail against, it mostly includes people who could hardly be considered rich. More importantly, the authors found a strong correlation between the preferences of this affluent group and those of the middle class — in other words, the policies that are enacted don’t often seem to buck the will of the broad public. Additionally, correlation doesn’t equal causation — politicians might do things that they think will benefit the overall economy, and that only coincidentally happen to please the affluent. It’s also likely that Gilens and Page are just wrong. A number of other research teams have done their own studies, and most concluded that it’s the middle class, not the rich, who tend to hold sway in democratic politics. A 2015 paper by political scientist Peter Enns, for example, concludes that “policy ends up about where we would expect if policymakers represented the middle class and ignored the affluent.”…”

Noah Smith, “Sanders’s Socialism Won’t Bring On the Revolution,” Bloomberg, June 28, 2019, https://www.bloomberg.com/opinion/articles/2019-06-28/sanders-s-socialist-revolution-won-t-go-far-with-middle-class

Sanders’s Socialism Won’t Bring On the Revolution

The front-runner for the Democratic presidential nomination is still the centrist Joe Biden. But two strong candidates on the left are competing to topple him — Senators Elizabeth Warren and Bernie Sanders. Both have spent years advocating for higher wages, higher taxes, stricter regulation of corporations and a variety of other egalitarian goals. But there’s a big difference between the two when it comes to ideological positioning — Sanders proudly declares himself a socialist, while Warren labels herself “capitalist to my bones.”

In past decades, those labels might have had more rigorous distinctions. But these days, socialists in the U.S. don’t do a lot of arguing over what’s needed to produce revolution, or whether workers ought to own businesses and factories. And Warren feels perfectly comfortable calling herself a capitalist while advocating government-run health insurance, worker representation on corporate boards and government promotion of industry. So what do the socialist or capitalist labels mean in the U.S. in 2019?

A big difference might be how one thinks about power. Sanders, in a recent criticism of Warren, declared that she had been embraced by corporate interests:

This seems to reflect a more general view among American socialists that wealth concentration — at both the individual and corporate levels — has subverted the political process. According to this narrative, the U.S. is now an oligarchy, where billionaires and corporate lobbyists are able to buy their preferred policies. Taxing wealth and profit, according to this view, won’t simply create a more materially equitable society, but a more politically democratic one as well. If wealth equals power, a more equal distribution of the former automatically leads to a more equal distribution of the latter. That raises the expectation that economic equality could snowball — that higher taxes on wealth and profits could lead to the election of leaders who are eager to enact even more egalitarian policies.

But how accurate is this narrative? Looking at modern history, has greater egalitarianism been a self-reinforcing process? The greatest period of U.S. economic equality was in the late 1970s:

But this era of equality is precisely when the U.S. took a turn toward free-market conservatism, culminating in the election of Ronald Reagan in 1980. Meanwhile, corporate profits as a share of the economy hit a trough during Reagan’s second term and — with a few interruptions during recessions — have been rising ever since:

But this seemed to merely whet the country’s appetite for deregulation.

Why did the U.S. support a capitalist revolution right at the point when inequality was at its nadir? The most prosperous Americans might have been able to exert a major influence even though their wealth hadn’t yet reached its present lofty heights — after all, even today, the biggest political donors spend only a small fraction of their net worth on politics or buying influence. Alternatively, the country’s leaders really believed that economic liberalization was what was necessary to get the economy moving again after almost a decade of stagnation. Or it could be that policy is like a pendulum, and that the public will tends to run counter to prevailing trends.

Those who believe the U.S. is an oligarchy often cite the research of political scientists Martin Gilens and Benjamin Page. In a 2014 paper, Gilens and Page measured correlations between policy outcomes and the preferences of various income groups. They found that policy was most highly correlated with the preferences of high earners. Some take this result as an indication that the rich have their way in U.S. politics, while the poor and middle class are voiceless.

But there are many reasons to doubt that conclusion. First of all, the group that Gilens and Page label “affluent” are those making more than $146,000 a year. Although this takes in the billionaire class that socialists rail against, it mostly includes people who could hardly be considered rich. More importantly, the authors found a strong correlation between the preferences of this affluent group and those of the middle class — in other words, the policies that are enacted don’t often seem to buck the will of the broad public. Additionally, correlation doesn’t equal causation — politicians might do things that they think will benefit the overall economy, and that only coincidentally happen to please the affluent.

It’s also likely that Gilens and Page are just wrong. A number of other research teams have done their own studies, and most concluded that it’s the middle class, not the rich, who tend to hold sway in democratic politics. A 2015 paper by political scientist Peter Enns, for example, concludes that “policy ends up about where we would expect if policymakers represented the middle class and ignored the affluent.”

This isn’t to say that the extremely wealthy exert no influence over the political process, or that corporate lobbyists wield no power in Washington. What it does suggest is that the struggle for equality of political power will be an eternal, ongoing one. The idea that reducing wealth and profit concentration will ignite a self-reinforcing political process that will eventually lead to true socialism seems like wishful thinking. Sanders’s policies would undoubtedly make the U.S. a less unequal society, but they are far more likely to end up as reform than revolution.

WSJ reports on the same OECD data showing an uptick in LFP by older workers that we pulled a few weeks ago

"...The rise in labor-force participation of over-55 year olds in Italy, Japan, the U.S., the U.K., Germany and France since 2001 equates to a combined 18.8 million workers, or a 5.5% boost in their supply of labor, according to the Organization for Economic Cooperation and Development....If the same share of Germans age 55 to 79 were in the labor force in 2018 as in 1991, Germany’s overall workforce would have contracted by 2.4%, or nearly 1 million people, over that period, according to an analysis by Mark Keese, an OECD employment economist. Instead, it expanded by 9.6%, or 3.8 million people. Italy’s labor force also would have contracted without growth in elderly participation..... Still, Mr. Keese points to Japan, which continues to defy economic odds despite its population’s advanced age. In 2018, 77% of Japanese aged 55 to 64 were in the labor force, up from 68.2% in 2011. “If other countries follow Japan’s pathway, then there’s still scope for employment rates to rise quite considerably, even from their current high levels,” he said...."

Sarah Chaney, "Gray Wave of Workers Gives Slow-Growing World a Boost,"Wall Street Journal, June 30, 2019, https://www.wsj.com/articles/gray-wave-of-workers-gives-slow-growing-world-a-boost-11561899600