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Kimball Corson
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I am both an economist (three year M.A., Univ. of Chicago, 1968, in economics PhD program) and a lawyer (J.D., Univ. of Chicago, 1971). I had a Woodrow Wilson National Fellowship in economics and the good fortune to study at Chicago under seven Nobel Laureates in economics (received before or... More
My blog:
Wandering the Oceans
  • The Need for Income Redistribution and Help for America's Small Businesses
    I have written extensively here on the need for income redistribution in favor of the middle and lower classes to correct for the maldistribution that has been created by Congress and the rest of government in favor of wealthy special interests using highly paid lobbyists at the expense of those income classes. The truth is the wealthy largely got their wealth or increased it markedly from or by means of government action, usually in the form of favorable legislation, regulations or unbid contracts. The situation is truly troubling.
    Income distribution as recently as 6 months ago had 21% of income going to the bottom 59%, 79% going to the top 41% and 6% of all income going to the top 1/10 of 1%. Just to be in the upper 1% these days, your income needs to be over $1,250,000 a year. Before I retired about six years ago, I was in the upper 1% or 2% then, but my annual income was not nearly that.
    This is way out of whack historically and damages the economy seriously by reducing aggregate demand because the middle and lower classes have a higher average propensity to consume goods and services than the wealthy who spend a larger percentage of their income on financial instruments. The result is permanently inflated financial markets and permanently depressed consumer goods and services markets. But redistribution alone won't do the job.
    America's small businesses must be helped to become more productive and profitable. Most of our GDP and employment is generated by small businesses. A big part of the problem here are the laws and regulations special interests have obtained from Congress and government over the years. They often hurt small business and help the wealthy and large businesses.
    An example should suffice. Many large corporations pay nothing or next to nothing in federal taxes. Few smaller businesses are able to do that. Global corporations cheery pick the countries for their various activities to take best advantage, including of taxation. That problem needs to be repaired with a vengeance. Also, government contracting strong favors bigger businesses, often where that is not really necessary. Many government contracts are let without even competitive bidding, using instead a political buddy system. Indeed, companies are thrown together overnight to take advantage of buddies in government who grant contracts. It is a travesty.
    I suggest we need a commission or standing group on small business to address and bring public attention to all laws, regulations and contracts at all levels of government which relatively handicap or comprise the efforts of small businesses or impose burdens on them that they are ill-equipped, because of their size, to handle. The commission should as well press for needed corrective legislation and regulation. This is important. As America's small businesses do better, income will become better distributed, although help is needed to correct for the ill-gotten gains from government of the wealthy as well.
    Further, small businesses that serve the national interest in direct way should be given temporary subsidies to assist them in getting started or through bad times. The Small Business Administration should be expanded. Chambers of commerce should be given grants to direct new, small businesses to endeavors likely to be profitable. A mentoring program could also be of help here, again sponsored by chambers of commerce or like standing organizations. More thought is needed here. These items simply come to mind quickly.
    Income redistribution via the tax system to correct the imbalances created by Congress and the rest of governments will significantly increase aggregate demand and restrain the inflation of U.S. financial markets, but an increase in small business output is also necessary to serve that increased demand. For that reason, the problem needs to be attacked from both the supply and demand side. During this recession, we have lost many small businesses and that is a problem that, like the rest of the problems I identify here, no one in government wants to discuss, much less think about seriously. Business as usual is the rule. "What problem" is the implicit attitude.
    Interestingly enough, contained within the dual program I suggest is an implicit solution to much of the nation's unemployment problem. Redistribution of income would increase aggregate demand significantly. Small businesses properly and temporarily assisted could do much to supply that demand. The result should be a noteworthy drop in unemployment within a reasonably short time. Without corrective redistribution and a major program like I suggest for small business, we cannot expect too good a recovery. We will remain pegged to a new "lower normal" level of GDP growth in my view.
    Until we can develop a public consensus around these points, getting Congress to do anything - especially something it might well perceive as being contrary to its own interests -- could be very difficult. Two major misconceptions attend developing that consensus.
    The first is the notion that the rich have "earned" all that they got. This is largely nonsense. The wealthy have largely gotten so mostly by receiving advantages from government in one form or another. As Warren Buffett makes clear, if the wealthy had income taken from them, they would not stop working, but would work all the harder trying to get more income. The wealthy, better than any group, know how to feed well at the government trough and they do, big time, along with getting the advantages of government regulations and legislation better than most others. For example, Warren Buffett bought options to directly acquire Goldman Sachs preferred stock, wanting to see first whether Goldman Sachs got bailed out on its CDS’s with AIG and how the TARP funds would be fully handled. He is feeding at the public trough, too, and a less deserving individual for government help is hard to imagine.
    Secondly, there is the perception that those unemployed or underemployed, along with their businesses, are lazy and incompetent and that is why they are in the fix they are in. This too simply is not so. It is true they are NOT so politically well connected. But that only makes my point that political connections go far toward determining income and opportunity in America, given the way government operates, rather than just hard work that is useful in the context of the market place alone. How good your and your friends' lobbyists are should not determine your income and the income distribution.
    The difficulty is virtually no one is thinking along these lines. That, in substantial part, is because too few have considered how we have gotten ourselves in to this situation and too few, especially who are doing well, really care. Unfortunately, that includes most of those in Congress.

    Disclosure: none relevant
    Feb 21 8:55 AM | Link | Comment!
  • Looking at Unemployment by Income Class
    A study done by  Northeastern University's Center for Labor Studies broke the unemployment rate down by income. Unemployment among those making $150,000 a year was only 3% in Q4 2009. What unemployment problem, right?  
    The unemployment rate for those in the middle income range was 9%, about average for the nation.
    But here’s the kicker. The unemployment rate for those in the bottom 10 percent of income came in at a whopping  31%.
    With only 3% unemployed at the top end, should we be surprised to see the infrastructure repair program (“Let’s Rebuild America”) of the Obama Administration never got off the ground. Wall Street and Larry Summer didn’t like it. No one polled or asked those in the bottom 10% and they didn’t bother to tell us. Or, what about Obama’s $33 billion bone toss to the unemployed, paying that sum to all employers for hiring and pay raise incentives – mere cosmetic tokenism so the Administration can look like it’s is doing something when it isn’t. As Summers candidly explained, we will just have to wait for the economy to pick up before unemployment drops.
    What if by some numerical fluke, the situation were reversed so that those making $150k or better a year had the 31% unemployment figure and the bottom 10% came in at 3% unemployed? Would Washington’s attitude and actions be the same?
    You can safely bet the farm not. We would have programs coming out of our ears. Arianna Huffington describes what the situation would be very well: “If one-third of television news producers, pundits, bankers, and lobbyists were unemployed, would the measures being proposed by the White House and Congress still be this pathetic? Of course not -- the sense of national emergency would be so great you'd practically be hearing air raid sirens howling.”
    So tell me. Do we have a government of the people by the people and for the people? Or do we have a government of the wealthy by the wealthy and for the wealthy? No guessing here. In fact, if we want to keep the percentages equal in this analysis for the top and the bottom, unemployment in the top 10% came in at a staggering 1.6%! Staggering, because it is so small a figure! This is better by far than full employment for that group.
    As the authors of the Report noted:
    “These stark findings clearly reveal the economics costs of underemployment in the current U.S. economy are disproportionately born by workers at the lower end of the income distribution. . . Thus underemployment contributes in an important way to the high and rising degree of income inequality in the U.S. . . There was no labor market recession for the nation’s affluent.”
    Again, we are not seeing “trickle down” economics working.  It is more like trickle up economics, where the lower classes are losing income to the upper classes. But we know that and I have written on it before, at length here. It is part of economics' dirty little secret everyone is trying to ignore. This report really comes as no surprise at all.
    We should be ashamed of ourselves. Our government, with its professed ideals, is fast becoming a bad joke, at the expense of too many and a rapidly growing number of people.

    Disclosure: none relevant
    Feb 18 8:34 AM | Link | Comment!
  • U.S. and World Trade: Where Are We?
    In a word, down. World trade dropped 3% in 2008 and walloping 13% in 2009. US trade, which is heavily dependent on the price of oil, rose by about 9% in 2008 and then fell by about 8% in 2009.
    Aside from oil prices for the U.S., the biggest factor impacting world trade in this slump was reduced demand from the contraction of aggregate demand in various countries. The credit crunch undermined the financing of world trade and caused further contraction. The bottom for world trade came in the Q2 of 2009 and growth began thereafter. Fiscal stimuli in many countries helped substantially here and inventory replenishment in many counties likewise aided world trade which then fell off a bit in Q4, as the more transient of those effects waned. By the end of Q4 2009 exports and imports of the major trading countries were well down on their 2008 peaks.
    What will happen in 2010? Best estimates are that world trade will improve due to slightly better global demand, some restocking of inventories and perhaps a bit of residual stimuli effect. Estimates are for an increase in world trade volume of from 3% to about 5.5%, with most estimates in the range of 4.5% to 5.2%. Much of course depends on commodity prices and demand, especially for oil and the demand for commodities in turn depends significantly on how well recovery goes in the major trading nations.
    If estimates of GDP growth are low, as they were early in Q4 of 2009, at least on the preliminary data, then world trade volume could pick up considerably better. This in turn is the question of whether we will see an L, V or W shaped world recovery. Indications so far point to a mild V shaped recovery, with many attending problems. There are considerable concerns about H2 of 2010 that dampen forecasts and point away from a V shaped recovery.  The PIIGGS’s problems impose a heavy dampener on prospects.
    Much might depend on how, if at all, the prospects of sovereign defaults are handled. If guarantees from healthier EU nations are forthcoming along with sensible cleanup efforts, the outlook for world trade might considerably improve. Because of the uncertainties involved with problems in the EU, not too much stock should be placed in current estimates of world trade growth. We could do much better or much worse. We need to know more about the direction of future events in the EU.
    China is doing its part in raising world trade, mostly by its importation of commodities, and in some cases residual stockpiling of them. That materially aided the 200% rise in the Baltic Dry Index in 2009, which should hold up well in 2010 as commodities prices improve and the factors discussed above regarding projections remain in play. On balance and viewed at a macro level, world trade will remain relatively depressed, as will the world shipping industry, which has too many new vessels coming out of the pipeline, creating excess capacity in shipping. Credit financing for trade has, however, improved significantly and that helps.
    What will likely dampen world trade growth the most is continuing weak imports by the U.S. and the EU, especially as China is now slowing it stockpiling of commodities. Again, much will depend on GDP growth in the U.S. and the EU. I am more optimistic here than most, largely because I sense a generally biased mind set among many toward the negative, due for the most part, I think, to the recession and financial crises we have all gone through. But we will see.
    A real concern, in the present environment is the need for G20 leaders to stay with their pledge to avoid protectionist tariff and non-tariff barriers to trade. The pressures will be considerable for them to renege. China, of course and with some justification, remains everyone’s favorite whipping boy and excuse here. Watch for a “Buy America” sentiment to creep into our trading attitudes and business in general. Trade talks and reform of the WTO could seriously matter here, but again, the real issue is GDP growth in the G20 and developing nations

    Disclosure: none relevant
    Feb 10 11:45 AM | Link | Comment!
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