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5601. Industrial Structure and Party Competition in an Age of Hunger Games: Donald Trump and the 2016 Presidential Election

Author:
Thomas Ferguson, Paul Jorgensen, and Jie Chen
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The U.S. presidential election of 2016 featured frontal challenges to the political establishments of both parties and perhaps the most shocking election upset in American history. This paper analyzes patterns of industrial structure and party competition in both the major party primaries and the general election. It attempts to identify the genuinely new, historically specific factors that led to the upheavals, especially the steady growth of a “dual economy” that locks more and more Americans out of the middle class and into a life of unsteady, low wage employment and, all too often, steep debts. The paper draws extensively on a newly assembled, more comprehensive database of political contributions to identify the specific political forces that coalesced around each candidate. It considers in detail how different investor blocs related to the Republican Party and the Trump campaign as the campaign progressed and the role small contributors played in the various campaigns, especially that of Vermont Senator Bernie Sanders. It also critically evaluates claims about the final weeks of the election in the light of important overlooked evidence.
Topic:
Economics, Political Economy, Elections, Finance, Donald Trump, Political Parties, and Banking
Political Geography:
North America, Global Focus, and United States of America

5602. Inequality in the 21st century: A critical analysis of Piketty’s work

Author:
Nadia Garbellini
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Thomas Piketty’s (2014) Capital in the XXI Century aims to analyze distributions of income and wealth and their determinants, in a set of developed countries from the nineteenth century to the present. The objective is a bold one, made even more so by the fact that Piketty pursues it not only from a theoretical, but also, from an empirical point of view. The task is particularly impressive not only because of the enormous effort required in collecting and organising data, but also because the work entails attaching a deterministic interpretation to facts and figures from radically different countries over a time span that covers almost two centuries, thereby forcing comparison between numbers coming from clearly incommensurable contexts. These difficulties are not lost to Piketty, who states that “[w]ithout precisely defined sources, methods, and concepts, it is possible to see everything and its opposite.” (Piketty, 2014, pp.2-3) This study argues that the empirical ‘methods and concepts’ adopted by Piketty are not always consistent with those coming from his reference theoretical framework, nor from National Accounts (United Nations, 2009).
Topic:
Economics, Inequality, Income Inequality, Economic Growth, and Capital
Political Geography:
Global Focus

5603. Persistent Effects of Autonomous Demand Expansions

Author:
Daniele Girardi, Walter Paternesi Meloni, and Antonella Stirati
Publication Date:
02-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The prevailing wisdom that aggregate demand shocks determine short-run cyclical fluctuations around a supply-determined equilibrium growth rate and an associated equilibrium unemployment rate (or NAIRU) has been called into question by various strands of literature over the last few decades. Specifically, a recently revived literature on hysteresis finds significant persistence in the effects of negative aggregate demand shocks (e.g. Blanchard et al. 2015; Fatás and Summers 2016; Martin et al. 2015). This paper aims to assess this tendency to return to a supply-determined potential output, independent of aggregate demand, after episodes of demand expansion. In line with the hysteresis literature, we assess the persistence of aggregate demand effects on key macroeconomic outcomes. However, in contrast with much of that literature, we assess whether persistence is detected also in instances of demand expansion. We study 94 episodes of demand expansion in 34 OECD countries between 1960 and 2015. We look at the sum of primary public expenditure and exports, a variable we call 'autonomous demand'. We define an expansion as a large yearly percentage increase in autonomous demand, ‘large’ meaning greater than a standard deviation above the country mean. We analyze the impact of these expansions on key macroeconomic outcomes in the subsequent decade, using various techniques to deal with endogeneity. We employ two main approaches: a dynamic two-way fixed-effects model, analogous to a standard difference-in-differences estimation; and a propensity score-based specification which explicitly models selection bias. We find a highly significant persistent effect on the GDP level: a one-off expansion in our autonomous demand variable by (an average of) 5% is associated 10 years later with a GDP level around 3% higher than in the control group, with no sign of mean reversion. We also document strong persistent effects on capital stock, employment and participation rates. Effects on productivity and the unemployment rate are also strong and quite persistent, but evidence regarding their permanence is more mixed. We do not find that expansions, on average, cause high or accelerating inflation. Our results lead us to ask whether hysteresis should be considered a distortion in the working of market economies that holds only in specific circumstances – as the mainstream literature has generally suggested – or whether it is, in fact, a pervasive phenomenon which holds most of the time.
Topic:
Economics, Inflation, Unemployment, and Capital Formation
Political Geography:
Global Focus

5604. The Price of a Vote: Evidence from France, 1993-2014

Author:
Yasmine Bekkouche and Julia Cagé
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
What is the price of a vote? This paper investigates this consequential controversy by analyzing a new comprehensive dataset of all French municipal and legislative elections over the 1993-2014 period. We begin by documenting the evolution of campaign finance in France, and show that both the amount and sources of campaign contributions vary widely from one candidate to another, in particular depending on their political party. We then turn to the empirical analysis and tackle a number of empirical challenges. First, we rely on recent methodological innovations to handle the special characteristics of multiparty data. Second, to overcome the endogenous nature of campaign spending, we propose a new instrument based on a change in legislation. We find that an increase in spending per voter consistently increases a candidate’s vote share both for municipal and legislative elections, and that the effect is heterogeneous depending on the parties and on the sources of campaign funding. According to our estimations, the price of a vote is about 6 euros for the legislative elections, and 32 euros for the municipal ones. Simulations show that small changes in spending patterns and caps can have a large impact on electoral outcomes and seats. Our results suggest that political finance needs to be tightly regulated.
Topic:
Politics, Reform, Elections, Political Parties, Data, and Campaign Finance
Political Geography:
Europe and France

5605. Where Do Profits and Jobs Come From? Employment and Distribution in the US Economy

Author:
Lance Taylor and Özlem Ömer
Publication Date:
04-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
“Meso” level analysis of 16 producing sectors sheds light on broad forces shaping growth of employment and profits. In a growth decomposition from 1990 through 2016, employment responds positively to output increases and negatively to rising productivity. The macro profit share responds positively to sectoral productivity and demand shifts, and negatively to real wage increases. The decomposition weights suggest that wage repression raises profits in business services, education and health, wholesale and retail trade, and parts of manufacturing. Observed profit growth was robust in manufacturing, trade, finance and insurance, and information. The latter two (and wholesale trade) benefitted from favorable demand shifts. However, they generate less than a quarter of total profits. Owners of real estate receive more than a quarter but their share is not increasing. Growth of the remaining one-half of profits has been due to demand shifts and productivity growth which exceeded real wage increases. Market power matters in all sectors. The strongest effects may act against employment and real wages in labor markets.
Topic:
Inequality, Income Inequality, Economy, Monopoly, Rent, Minimum Wage, and Wealth
Political Geography:
North America and United States of America

5606. The Focus of Academic Economics: Before and After the Crisis

Author:
Ernest Aigner, Matthias Aistleitner, Florentin Glötzl, and Jakob Kapeller
Publication Date:
05-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Has the global financial crisis of 2007ff had a visible impact on the economics profession? To answer this question we employ a bibliometric approach and compare the content and orientation of economic literature before and after the crisis with reference to two different samples: A large-scale sample consisting of more than 440,000 articles published between 1956 and 2016 and a smaller sample of 400 top-cited papers before and after the crisis. Our results suggest that – unlike the Great Depression of the 1930s – the current financial crisis did not lead to any major theoretical or methodological changes in contemporary economics, although the topic of financial instability received increased attention after the crisis.
Topic:
Economics, Academia, and Economic Crisis
Political Geography:
Global Focus

5607. Too Big to Fail U.S. Banks’ Regulatory Alchemy: Converting an Obscure Agency Footnote into an “At Will” Nullification of Dodd-Frank’s Regulation of the Multi-Trillion Dollar Financial Swaps Market

Author:
Michael Greenberger
Publication Date:
06-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The multi-trillion dollar market for, what was at that time wholly unregulated, over-thecounter derivatives (“swaps”) is widely viewed as a principal cause of the 2008 worldwide financial meltdown. The Dodd-Frank Act, signed into law on July 21, 2010, was expressly considered by Congress as a remedy for the deregulatory problems, in that market, that led to the crash. The legislation required the swaps market, subject to U.S. regulation, to comply with a host of business conduct and anti-competitive protections, including that the swaps market be fully transparent to U.S. financial regulators, collateralized, and capitalized. The statute also expressly provides that it would cover foreign subsidiaries of big U.S. financial institutions if their swaps trading could adversely impact the U.S. economy or represent an attempt to “evade” Dodd-Frank.
Topic:
Regulation, Finance, Banks, Commodities, and Derivatives
Political Geography:
North America and United States of America

5608. The Subversion of Shareholder Democracy and the Rise of Hedge-Fund Activism

Author:
Jang-Sup Shin
Publication Date:
07-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper explains how hedge-fund activists are exerting power over corporate resource allocation far in excess of the actual voting power of their shareholdings. The power of these “minority-shareholding corporate raiders” derives from misguided regulatory “reforms” carried out in the 1980s and 1990s in the name of “shareholder democracy”. Sanctioned and overseen by the Department of Labor (DOL) and the Securities and Exchange Commission (SEC), these reforms include the introduction of compulsory voting by institutional investors and proxyvoting rule changes that greatly facilitated hedge-fund activists’ aggregation of the proxy votes of institutional investors. In addition, the introduction of the 1996 National Securities Markets Improvement Act (NSMIA) that allowed hedge funds to draw funds from institutional investors effectively with no limit also played an important role in the rise of hedge-fund activism. The paper concludes with policy proposals to rebalance value creation and value extraction by rebuilding the engagement and proxy voting system including (1) making it mandatory for shareholders to submit justifications in shareholder proposals on value creation or capital formation of corporations concerned; (2) removing voting as a fiduciary duty of institutional investors; (3) introducing differentiated voting rights that favor long-term shareholders; and (4) making it mandatory for both shareholders and management to reveal to the public what they discussed in engagement sessions.
Topic:
Economics, Regulation, Finance, Investment, Shareholder Democracy, Hedge Funds, and Value Extraction
Political Geography:
North America and United States of America

5609. Social Stability and Resource Allocation within Business Groups

Author:
Haikun Zhu
Publication Date:
08-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Using datasets on transactions within business groups and social sentiment in China, I show that state-owned enterprises (SOEs) use internal funds to address social unrest, complying with the government’s political goals. I use plausibly unexpected shocks to regional stability to analyze the response of SOEs to these events. I find that the government, as the controlling shareholder, adopts a carrot-and-stick approach. The government offers a “carrot” by injecting funds into SOEs located in the affected areas, which are then used to generate benefits to the public, such as larger labor payments and additional capital expenditures. However, if there are severe political conflicts that threaten its authority, the government applies a “stick” by withdrawing resources. The SOEs channel seems effective because local sentiment recovers around shocks when SOEs offer more benefits. Additional tests show that the SOEs channel is significant in economic magnitude compared to fiscal redistribution. As a result of the transfer, SOEs lose value after shocks, but firms in the region improve their performance later. This paper provides new evidence on how the intra-group allocation of resources incorporates political objectives, and has socioeconomic impact.
Topic:
Economics, Political Economy, Business, Capital, and Social Stability
Political Geography:
China and Asia

5610. Race to the Bottom: Low Productivity, Market Power, and Lagging Wages

Author:
Lance Taylor and Özlem Ömer
Publication Date:
08-2018
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
“Dualism” in the structure of production across sectors of the US economy, employment by sector, productivity levels and growth, real wages, and intersectoral terms-of trade increased markedly between1990 and 2016. The discussion focuses on 16 sectors. Seven were “stagnant” - - construction, education and health, other services, entertainment, accommodation and food, business services, and transportation and warehousing. They had low productivity levels, productivity growth rates hovering around zero, and low real wages. Their share of total employment rose from 47% in 1990 to 61% in 2016. The other “dynamic” sectors had higher and positively growing productivity while the terms-of- trade shifted against them. This bifurcation between industries is discussed in terms of a simple model. Increasing duality and secular stagnation are distinct possibilities.
Topic:
Economics, Employment, Economic structure, Industry, Productivity, and Wage Growth
Political Geography:
North America and United States of America