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61. The Myth of Dynastic Wealth: The Rich Get Poorer

Author:
Robert Arnott, William Bernstein, and Lillian Wu
Publication Date:
09-2015
Content Type:
Journal Article
Abstract:
Thomas Piketty’s Capital in the Twenty-First Century rocketed to the top of the best-seller lists the moment it was published in 2013, and remained there for months. While this feat is quite remarkable for a weighty tome on economics, it’s no mystery why Piketty’s magnum opus created such a sensation; it is clearly articulated, is accessible to the non-economist, and contains a trove of historical insights. We believe Piketty’s core message is provably flawed on several levels, as a result of fundamental and avoidable errorsin his basic assumptions. 1 He begins with the sensible presumption that the return on invested capital, r, exceeds macroeconomic growth, g, as must be true in any healthy economy. But from this near-tautology, he moves on to presume that wealthy families will grow ever richer over future generations, leading to a society dominated by unearned, hereditary wealth.
Topic:
Economics
Political Geography:
United States and Europe

62. Central Bank Stress Tests: Mad, Bad, and Dangerous

Author:
Kevin Dowd
Publication Date:
09-2015
Content Type:
Journal Article
Abstract:
One of the most important aspects of the remarkable transformation of central banking following the onset of the 2008 global financial crisis is the growth of regulatory stress tests for the larger banks. The relevant regulator—typically the central bank—uses these to determine the ability of the banks to withstand stress, and uses the results of the tests to assess the overall financial health of the banking system. A key purpose of the stress tests is to reassure the public that the banking system is sound.
Topic:
Economics
Political Geography:
United States

63. The Conservatarian Manifesto: Libertarians, Conservatives, and the Fight for the Right’s Future

Author:
Ilya Shapiro
Publication Date:
09-2015
Content Type:
Journal Article
Abstract:
It’s altogether fitting that a book throwing down the gauntlet for a libertarian-conservative fusion in the 2010s has emerged from an author linked to the same magazine as the progenitor of the original fusionism of a half-century earlier. I only recently met Charlie Cooke—though we’ve exchanged many tweets—and never had the chance to meet Frank Meyer—though I’m heavily involved with the Federalist Society, which his son Eugene has long led—butI have no doubt that the two would get on swimmingly. And it comes as no surprise that both cut their writing chops at National Review, which many assume is a stodgy journal of urtraditionalist redoubt when in fact it has produced some of the most innovative reformist ideas in the conservative movement. Or, should I say, that it has featured ideas from the full range of center-right thought, along with various manifestations of entertainingly untraditional personal style.
Topic:
Economics
Political Geography:
United States

64. An Assessment of the Korea-China Free Trade Agreement

Author:
Jeffrey Schott, Eujiin Jung, and Cathleen Cimino-Isaacs
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Of all the free trade agreements (FTAs) concluded by Korea with its major trading partners since the turn of the century, the Korea-China FTA may be the largest in trade terms. It is, however, far from the best in terms of the depth of liberalization and the scope of obligations on trade and investment policies. Korea and China agreed to liberalize a large share of bilateral trade within 20 years, but both sides incorporated extensive exceptions to basic tariff reforms and deferred important market access negotiations on services and investment for several years. Political interests trumped economic objectives, and the negotiated outcome cut too many corners to achieve such a comprehensive result. The limited outcome in the Korea-China talks has two clear implications for economic integration among the northeast Asian countries. First, prospects for the ongoing China-Japan-Korea talks will be limited and unlikely to exceed the Korea-China outcome. Second, Korea and Japan need to strengthen their bilateral leg of the northeast Asian trilateral and the best way is by negotiating a deal in the context of the Trans-Pacific Partnership.
Topic:
Economics, International Trade and Finance, Politics, and Bilateral Relations
Political Geography:
United States, China, Asia, and Korea

65. Estimates of Fundamental Equilibrium Exchange Rates, November 2015

Author:
William R. Cline
Publication Date:
11-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The latest semiannual fundamental equilibrium exchange rate (FEER) estimates find that the US dollar is now overvalued by about 10 percent, comparable to levels in 2008 through early 2010 and again in 2011. Unlike then, the current strong dollar does not reflect a weak renminbi kept undervalued by major exchange rate intervention by China. Instead, China's current account surplus has fallen sharply relative to GDP, and its recent intervention has been to prevent excessive depreciation rather than to prevent appreciation. Additionally, declines in the real effective exchange rates (REERs) for major emerging-market economies and resource-based advanced economies, driven by falling commodity prices in recent months, have strengthened the dollar. Recent increases in the REERs for the euro area and Japan have removed their modest undervaluation identified in the last FEERs estimates in May, and the Chinese renminbi remains consistent with its FEER. The dollar's rise by nearly 15 percent in real effective terms over the past two years could impose a drag of nearly one-half percent annually on US demand growth over the next five years. As the Federal Reserve moves to normalize US monetary policy, it may need to consider a gentler rise in interest rates than it might otherwise have pursued, both to temper possible further strengthening of the dollar in response to higher interest rates and to help offset the demand compression from falling net export
Topic:
Economics, International Trade and Finance, Monetary Policy, and GDP
Political Geography:
United States and China

66. Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account

Author:
Robert Z. Lawrence
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Over the past decade, the US economy has been plagued by sluggish wage growth and rising income inequality. The debate over inequality in the 1980s and 1990s focused on the growing disparity between the earnings of skilled and unskilled workers and the earnings of the super-rich. Growing inequality between capital and labor income has now been added to these concerns. Remarkably, the growth in real GDP per worker over the decade of the 2000s, which averaged 1.7 percent annually, was actually more rapid than in the 1970s, 1980s, or 1990s, yet in the 2000s workers saw almost no increase in their take-home pay. Consistent with this gap between labor productivity and wage growth was a pronounced decline in the share of US national income earned by workers. As labor's share has declined, the share of capital has risen and has been especially concentrated in corporate profits. As profits are far less equally distributed than wages, this increase has contributed to rising income inequality. There are several plausible reasons for this development—globalization, automation, weak bargaining power of labor, political capture, higher markups—but the natural starting point for explaining factor income shares is the neoclassical theory of the functional distribution of income enumerated by John Hicks and Joan Robinson in the 1930s. In this framework there are two possible explanations for labor's recent declining share. The first is that capital and labor are gross substitutes, and the second is that capital and labor are gross complements. Several papers have explained the recent decline in labor's share in income by claiming that capital has been substituted for labor. Lawrence puts forward the alternative "gross complements" explanation for the declining US labor share. He shows that despite a rise in measured capital-labor ratios, labor-augmenting technical change in the United States has been sufficiently rapid that effective capital-labor ratios have actually fallen in the sectors and industries that account for the largest portion of the declining labor share in income since 1980. In combination with estimates that corroborate the consensus in the literature that the elasticity of substitution is less than 1, these declines in the effective capital-labor ratio can account for much of the recent fall in labor's share in US income at both the aggregate and industry level. Paradoxically, these results also suggest that increased capital formation, ideally achieved through a progressive consumption tax, would raise labor's share in income.
Topic:
Economics, Globalization, Markets, and Labor Issues
Political Geography:
United States

67. The Future of Work for Low-Income Workers and Families

Author:
Vickie Choltz and Maureen Conway
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Aspen Institute
Abstract:
The Future of Work for Low-Income Workers and Families is a policy brief aimed at state policy advocates and policymakers seeking to help low-income workers and their families secure healthy economic livelihoods as the nature of work evolves in the United States. Published by the Working Poor Families Project in December 2015, the brief was written by Vickie Choitz, associate director of the Economic Opportunities Program, with Maureen Conway, vice president at the Aspen Institute and executive director of the Economic Opportunities Program. This brief reviews the major forces shaping the future of work, including changes in labor and employment practices, business models, access to income and benefits, worker rights and voice, education and training, and technology. Across these areas, we are seeing disruptive change in our economy and society resulting in increasing risk and challenges for low-income workers, in particular.
Topic:
Security, Economics, Human Welfare, Social Stratification, and Employment
Political Geography:
United States

68. Reimagining Financial Security: Managing Risk and Building Wealth in an Era of Inequality

Author:
Annie Kim
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Aspen Institute
Abstract:
The 2015 Financial Security Summit, titled Reimagining Financial Security: Managing Risk and Building Wealth in an Era of Inequality, took place July 15–17 in Aspen, Colorado. The Summit agenda built on FSP's core themes of expanding retirement security and children’s savings accounts for low- and moderate-income families, and began to explore a broader vision of how to improve short- and long-term dimensions of financial wellbeing in a rapidly changing economy. Participant contributions helped shape new areas of focus for FSP going forward. This report incorporates those insights and provides an outline for future policy dialogue and directions.
Topic:
Security, Economics, Human Welfare, Social Stratification, and Employment
Political Geography:
United States

69. Economic Statecraft: American Economic Power and the New Face of Financial Warfare

Author:
Elizabeth Rosenberg and Zachary K. Goldman
Publication Date:
06-2015
Content Type:
Policy Brief
Institution:
Center for a New American Security
Abstract:
The United States has long relied on its economic power to protect and advance its interests abroad. In an increasingly integrated international financial system, the U.S. economy and capital markets remain the largest in the world by almost every measure. This status affords the United States an important global leadership position and the ability to shape foreign policy outcomes with economic tools. The structure of the international trade and financial system, in which many significant banking and energy transactions as well as currency reserves are denominated in U.S. dollars, reinforces the central role of the United States.
Topic:
Foreign Policy, Economics, Globalization, International Trade and Finance, Markets, and Power Politics
Political Geography:
United States

70. Military Compensation and Retirement Modernization: A Primer

Author:
Phillip Carter and Katherine Kidder
Publication Date:
01-2015
Content Type:
Working Paper
Institution:
Center for a New American Security
Abstract:
Military, Veterans, and Society Program Director Phillip Carter and Research Associate Katherine Kidder examine the growth of military compensation in the post-Cold War era, from 1990 to 2015, as well as the social contract America has with its All-Volunteer Force, and the ways in which monetary compensation should be considered as part of a broader talent management strategy for the armed forces. The policy brief presents an opportunity for the nation to assess its social contract with the All-Volunteer Force and adjust (if necessary) to meet the national interest and sustain its most critical national security asset.
Topic:
Security, Economics, Labor Issues, and Military Affairs
Political Geography:
United States