Naked Capitalism has the article Are Economists in Denial About What’s Driving the Inequality Trainwreck?

A new paper by economist Lance Taylor for the Institute For New Economic Thinking’s Working Group on the Political Economy of Distribution takes on the way economists have looked at wealth and income inequality.
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LT:

The existing social order does not necessarily guarantee that the rich will get richer (remember Keynes on the essential uncertainty of the future). But even if they do, a stiff tax on capital gains could be used to build up a socially-oriented wealth fund that would help offset that.

Look at Norway’s “oil fund,” which takes a cut of petroleum revenues and invests the money while giving a small annual pay-out from its investment returns. An example closer to home is California’s CalPERS retirement fund. The key point is that such funds can save at a higher rate than wealthy households, amassing market power and potentially using capital income for social purposes.

In the labor market, real wages of employees have lagged productivity growth, which is why the profit share for the boss has gone up. Outsourcing has played some role, but policies and legal interpretations (think of so-called “right to work” legislation and attacks on public sector unions) that reduce labor’s bargaining power have been more important. Recreating that power could reverse the trends and slow the accumulation of wealth. Our studies and others suggest that simply raising taxes on the rich and transferring the proceeds downward in the income distribution will not have a large immediate effect on distribution, but the impacts could cumulate over time.

It’s possible to reduce U.S. wealth and income disparity, but reversing the trends of the past 30 or 40 years that got us there will not be easy or quick.

Of course I would like this article. It substantiates a lot of what I have been writing on this blog. Just because I suffer from confirmation bias, doesn’t mean that the article is wrong, though. It is just possible that my ideas really are close to correct.

The talk about Norway’s “oil fund” demonstrates what I think are the benefits of having large parts of the Social Security Trust Fund invested in the stock market. California’s CalPERS retirement fund is just another example. Admittedly CalPERS management has gone off the rails a bit in recent years as documented by the Naked Capitalism web site. That just means we need to develop better control mechanisms for the Social Security Trust Fund when it gets into stock market investing.

Search this website for the many articles I have posted on investing Social Security in the stock market.

I have just finished reading Robert Reich’s new book Saving Capitalism For The Many, Not The Few.

I have come to a set of expectations for books of this type. The really good ones do a great job of identifying a problem, providing new ways to analyze the problem, and new ways to explain the problem clearly for the rest of us to understand. This book does all that, so I rate it really good.

These books always have a small part at the end that tell us what to do about the problem. These are universally the weakest part of the books. Most of the books do tell you what needs to be changed, which of course is pretty obvious from the excellent description of the problem. No book that I have read so far tells you any practical way to bring about the change.

Robert Reich’s book goes farther than many books because he doesn’t just tell us that people have to act differently from the way they have ever acted before. He does go through some specific rules of the market that need to change, and he does describe some ways of reorganizing the meaning of basic economic entities such as corporations. What he cannot do, and therefore does not do, is to explain how we wrest power from those who now wield it in such a way that we can never seriously contemplate how to make the changes that he says we need.

The robots of the future, along with other breakthrough technologies, will not exactly take away “common property” for which citizens deserve to be indemnified. But they will take away good good jobs that are already dwindling in number and replace opportunities already growing scarce. They will, in short, supplant the middle class that has been the centerpiece of our economy and society that is already shrinking. New market rules that cause wealth eventually to revert to the public domain rather than compound for future generations that had nothing to do with creating it, and be used instead to finance a minimum guaranteed income for all citizens, is one way to go.

This and some other ideas he discusses are starting to be tried in some places around the world, so it is not as if they are completely outside of the realm of possibility. I should give Reich more credit for bringing these ideas to the fore in a book that may be more widely read than other sources that discuss these ideas.

What strikes me is that there is a transition step that I think is more easily made, and I do not see even mentioned. The idea has been described and thoroughly researched by Franco Modigliani and Arun Muralidhar as described in several posts on this blog, but even they shied away from the deeper implications of their proposals. Possibly they downplayed these implications for fear that it would be too upsetting to the 0.01% if they were to understand what the implicatons were.

I am talking about changing the Social Security Trust Fund investment rules so that the trust fund could actually buy shares of corporations. The premise is that the trust found would have far better returns than the Treasury bonds they must buy now. With better returns, the trust fund could both do with less money being taken in from taxes, and it could safely pay higher benefits. This is the surface meaning of this idea.

The deeper implication is that an arm of our government, The Social Security Trust Fund, would own a very large part of the private corporations, given the size of the trust fund. Rather than be passive investors, the trust fund could be active in demanding that corporations pay more attention to the needs of the whole society. The trust fund as a major shareholder would do that because the trust fund has that basic responsibility to society as a whole. This is unlike private investors who have only their own best interests at heart.

Moreover, the fact that the Social Security Trust Fund was growing because of the growth of corporations would in itself be a sharing of the benefits of increasing productivity which sharing is not going on now.

This idea of starting to invest the trust fund in corporate shares is something that could start small, and grow over time. The transition could be so gradual, that people would hardly notice the impact until it had grown substantially. It would also have the benefit of changing its course if unforeseen side-effects started to appear.

As the size of the investment grew, the incentives for corporations would change. The income inequality between top executives and average workers would start to get controlled in a way that no group of small investors can cause. The funding by corporations of buying elections and elected officials to rig the system for their benefit could be brought under control. This change in wealth and income distribution, and diminishing of political power and influence would make it easier to make Reich’s more far reaching changes possible.

If the public understood these changes this way, they might be far more apt to strongly support them. Of course the people with the power now would also understand, and they would fight these ideas more fiercely. It is then a question of whether or not the power of an idea could overcome the power of the money. I think history shows that sometimes this can happen.

Naked Capitalism has the story Will Hillary Clinton Adopt Hedgie Billionaire John Arnold’s Schemes for Retirement Insecurity?

The front-running scheme for “retirement security” — backed by billionaire John Arnold — looks an awful lot like it’s “on the table” because it guarantees that middlemen collect fees for “managing” what we used to call your “nest egg.” Will Hillary Clinton’s campaign platform support it?

Hillary Clinton Has Ruled Out Expanding Social Security.

This is a warning to watch your wallets. The article is too filled with just pejoratives, and a little light on specifics, but it does warn us of things to watch out for. In fact, this plan might sound a little like the Modigliani/Muralidhar plan or the one I proposed in my previous post in November 2013 Elizabeth Warren: We should be talking about expanding Social Security benefits. However, the devil is in the details. The details in this case is all about the size of the fees. Large fees can turn a retirement plan from a saving grace (pun intended) to a disaster for the retiree.

Here is a very simple test for any retirement plan. If any manager gets to be a billionaire by managing such a program, then the beneficiaries are being robbed. Those billions of dollars represent money that the beneficiaries should have had.

Truthout has the article The End of the Assault on Social Security and Medicare by Dean Baker.

Third Way is one of a long list of organizations that have received Wall Street funding to go after Social Security and Medicare under the guise of protecting the young from their greedy parents and grandparents. This list includes Lead or Leave, the Concord Coalition, The Committee for a Responsible Federal Budget, America Speaks, Fix the Debt and the Can Kicks Back.

At a time when we are seeing the largest upward redistribution in the history of the world these organizations have attempted to divert attention from the class war on the nation’s middle class and poor. Instead they are trying to convince young people that their financial difficulties stem from the size of their parents’ Social Security checks.

I’ll have to go back and reread the article to see how the headline fits the content.  I don’t see where the end of the assault comes in.

I left the comment to Dean Baker and the other readers:

Are you aware of the work by Arun Muralidhar? His latest paper is:

Saving Social Security: A Better Approach by Thomas K. Philips and Arun Muralidhar.

I have managed to connect him up with people in the Elizabeth Warren office in Washington. I expect great things from this collaboration.

I am hoping for another article by Arun Muralidhar soon.  The country can stand the benefit of all that he knows about various attempts around the world to try different ideas for funding Social Security programs and pension programs.  He has a good knowledge of what fails and what succeeds.

Rachel Maddow’s web site has the article We should be talking about expanding Social Security benefits featuring the Elizabeth Warren floor speech below.

Over the past generation, working families have been hacked at, chipped, and hammered.  If we want a real middle class – a middle class that continues to serve as the backbone of our country – then we must take the retirement crisis seriously.  Seniors have worked their entire lives and have paid into the system, but right now, more people than ever are on the edge of financial disaster once they retire – and the numbers continue to get worse.

That is why we should be talking about expanding Social Security benefits – not cutting them…. Social Security is incredibly effective, it is incredibly popular, and the calls for strengthening it are growing louder every day.

Search this blog for all I have written about Social Security. After all that, Elizabeth Warren’s speech inspired a new idea for me.

What we need is a 401K option to invest into a Government run pension system that invests wisely.  Such a plan has almost been proposed at MIT by Modigliani, et, al,  Such a plan has almost been put into legislation by Rep. Peter DeFazio (in 2001).  What is new in my idea is that this plan is not (only) to be part of Social Security, but it expands Social Security to cover the 401K also.  Think of this as the “public option” for retirement that is the equivalent of the “public option” we so much wanted for health care in the Affordable Care Act

I just realized that this “public option” idea is very nearly contained in the article that is the subject of my previous post Saving Social Security: A Better Approach. Not excerpted in my previous post, is the following excerpt from the article Saving Social Security: A Better Approach by Thomas K. Philips and Arun Muralidhar.

In addition, centralized administration and record keeping make pension portability exceptionally easy to implement. Therefore, workers would be free to gravitate toward the most productive sectors of the economy without fear of losing their accrued pension benefits. When an employee left a company for a job elsewhere, his vested pension benefits could be sent to the Social Security system for credit to his account. Adding a table to each account to track all the additional contributions made to it over the course of time would be a relatively simple matter. Employees’ payments in retirement would be based on the sum of their Social Security contributions and any additional contributions made to those account.

My innovation takes this idea for portability of vested part of an employer provided pension, and applies it to the 401K plans naming it the “public option”.  If the private pension assets were put into this new “public option” right from the start of the accrual of benefits, this would do away with the possibility of vulture capitalists taking over a company to raid its pension system.  This would be a tremendous benefit to society all by itself.

The extent of the howl of complaints about this from the private sector would be a good measure of the wisdom of this plan.

Financial Analysts Journal November/December 2008, Vol. 64, No. 6 has the article, Saving Social Security: A Better Approach by Thomas K. Philips and Arun Muralidhar.  Arun Muralidhar is the coauthor with Franco Modigliani of many of the items I have talked about before with regard to saving Social Security.  This article is a wonderful introduction to their ideas with some updating since the 2004 book that I have mentioned.

Here is one notable excerpt from the article.

Arnott and Casscells (2003) and Munnell and Sass (2008) pointed out that the real problem of designing a retirement plan for the population does not relate to inadequate savings, but rather to demographics and productivity (i.e., the generation of sufficient real consumption goods by the future young to support the consumption of the then elderly).

I particularly like this quote because it answers the article’s initial statements about the need for increased saving.

I like the thought experiment of considering the day when automation allows all the necessary goods and services to be produced without the need for anybody to work.  Would we have a society where the benefits of this paradise were shared among all the people?  Or would we have a society in which one or two people owned everything and the rest of us had to live as beggars?  This thought experiment focuses us on the real issue of the economy being able to produce enough goods and services.  If the economy is able to produce enough goods and services, then it is only a political/moral issue of whether or not everybody in society benefits. The issues of savings and investment are just bookkeeping.

Another notable quote is:

The assets of the Social Security system should be invested solely for the benefit of beneficiaries. And their management should be subject to the regulation of ERISA to ensure that neither the U.S. Congress nor any presidential administration can divert the assets to purposes that are not in the best interest of the entire system. In particular, all proxies should be voted to benefit shareholders (i.e., the citizenry of the United States) in accordance with ERISA, and not to protect inept or politically wellconnected special-interest groups.

I like the quote because it addresses just what stance the Social Security Administration should take with respect to the companies whose stocks it has in the Social Security Trust fund.  It also shows that the authors of the article address the many thorny, practical, political considerations in moving to the plan they propose.

Read the full article at the link I have provided above to get many more valuable ideas.

If you have a subscription to Financial Analysis Journal, you can read the Letter To The Editor “Saving Social Security: A Better Approach”: An Update March/April 2009, Vol. 65, No. 2: 10