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A few well-written words can convey a wealth of information, particularly when there is no lag time between when they are written and when they are read. The IPS blog gives you an opportunity to hear directly from IPS scholars and staff on ideas large and small and for us to hear back from you.

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Entries tagged "global economy"

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European Parliament Supports Robin Hood Tax in Landslide Vote

December 14, 2012 ·

Under pressure to address a massive deficit, legislators voted overwhelmingly this week in favor of a tax on financial speculation. This really happened, I swear.

Robin Hood Tax supporters scored a goal in Europe. Is the U.S. next? Photo by Robin Hood Tax campaign.OK, it was in Europe, not the United States. But it could happen here—and it should.

The vote in the European Parliament on December 10 was the latest in a series of victories by international campaigners for a tax on trades of stocks, bonds, and derivatives. Often called a “Robin Hood Tax,” the goal is to raise massive revenues for urgent needs, such as combating unemployment, global poverty, and climate change.

A financial transaction tax would also discourage the senseless high frequency trading that now dominates our financial markets. Recently, the chief economist of the Commodity Futures Trading Commission (the top U.S. derivatives regulator) found that such trading practices are hurting traditional investors.

In reaction to the Parliamentary vote, David Hillman, of the U.K. Robin Hood Tax campaign, said that the tax “will raise at least 37 billion euros per year for the countries involved whilst reining in the worst excesses of the financial sector.”

Nicolas Mombrial, a Brussels-based policy adviser for Oxfam, added that “The European Parliament’s overwhelming support reflects the will of Europe’s people. In cash-strapped times, an financial transactions tax is a no-brainer that is morally right, technically feasible, and economically sound.”

Read the rest of this article on the Yes! Magazine website. 

Do We Need 'Student Loans' for Billionaires?

October 18, 2011 ·

Polly Toynbee, a commentator for Britain’s Guardian newspaper, plays a role quite similar to Paul Krugman, the Nobel Prize-winning economist who doubles as a New York Times columnist. Both regularly advance well-reasoned — and even inspirational — attacks on the concentration of income and wealth that have left the United States and the UK the world’s two most unequal developed nations.

Both also rate as eminently pragmatic. They champion the politically possible. But we live today in tumultuous times, and that may be why Toynbee last week found herself celebrating a proposal for taxing the rich that rather boldly stretches most anybody’s sense of political practicality.

Guardian columnist Polly Toynbee visits last year's occupation of University College London. Photo by ucloccupation.Why not levy, Toynbee asked, a one-time 20 percent tax on the total wealth of Britain’s richest tenth, a tax “graduated” to ensure that the richest 1 percent pay at a higher rate than households at the bottom of this top 10 percent?

This one-time “windfall taking” tax, Toynbee suggested, could help “save services, save jobs, expunge the national debt, kick-start growth, and set the economy on the road to recovery.”

“The worst ever crisis,” she added, “needs better solutions than any currently on offer for the grim decade ahead.”

The United States, of course, faces that same grim decade. And that makes Toynbee's proposal a matter of more than idle interest. Could a one-time 20 percent levy on the wealth of the rich really make an appreciable difference?

The source of Polly Toynbee’s wealth tax proposal, Glasgow University’s Greg Philo, certainly thinks so. Philo first laid out the proposal last year and even had a national poll commissioned to gauge public reaction. That survey found 74 percent of the UK population approving.

Britain’s richest 10 percent currently hold £4 trillion — about $6.3 trillion — of the UK’s £9 trillion in personal wealth. A 20 percent tax on that £4 trillion would raise £800 billion, enough, says Philo, to “pay off the national debt” and “avoid the need for deep and harmful cuts” in public services.

Philo’s plan anticipates one major objection. Few affluent households have 20 percent of their wealth in readily available cash. They have much of their wealth in property of various sorts that would have to be sold, perhaps at a great loss if all the wealthy had to sell at once.

Not a problem. The wealth tax, under Philo's plan, would not have to be paid all at once. But if a wealthy household wanted to delay payment, that household would have to pay interest on its outstanding wealth tax liability.

“It would be akin,” says Philo, “to a student loan for the rich.”

A 20 percent tax on the wealth of Britain’s richest 10 percent, points out the Guardian’s Polly Toynbee, would essentially “push back downwards the money hoovered upwards in the last decade.”

The billions “hoovered upwards,” Glasgow University’s Philo adds, have largely “been directed into inflated property values.” A wealth tax could recirculate this “dead money” into government expenditures that could stimulate growth.

A one-time 20 percent wealth tax, Philo sums up, “offers a real alternative” that would “move debt off the government's books, using money that is largely trapped in the housing market, from people who will not miss it.”

Could such a wealth tax have a similar impact on the United States? The U.S. numbers — on wealth distribution — make that question a natural. Our richest actually hold a far greater wealth share than Britain’s.

In the UK, the top 10 percent hold 44 percent of their nation’s personal wealth. In the United States, notes an analysis from the Economic Policy Institute released earlier this year, just the top 5 percent held 63.5 percent of the nation’s wealth in 2009. The top 1 percent alone held 35.6 percent.

As of April 2011, NYU economist Nouriel Roubini and two colleagues reported last week, total U.S. household net worth amounted to $56.8 trillion. If we assume that the distribution of U.S. wealth has not changed since 2009, our latest year with distributional figures available, then the top 10 percent today hold 75.1 percent of the nation’s current wealth, or $42.7 trillion.

A 20 percent tax on this wealth would raise over $8.5 trillion, a sum that equals about 85 percent of America's publicly held national debt.

And America’s richest 1 percent? How would they be faring if they had to pay a one-time 20 percent wealth levy? Their average remaining net worth would actually be higher, after adjusting for inflation, than the net worth of America’s richest 1 percent in 1983. Indeed, the top 1 percenters could pay a 25 percent wealth tax and still hold more wealth than their 1983 total.

Our next decade need not be grim. Our next decade does need to be more equal.

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How Obama is to the Right of Reagan on Trade

September 8, 2011 ·

This blog post was originally published in Triple Crisis.

While doing some archaeological digging into old treaties, I discovered that the Reagan revolutionaries were relative softies on at least one issue — government meddling in capital markets.

The vast majority of the 52 existing U.S. trade agreements and bilateral investment treaties forbid governments from putting controls on capital flows. But buried in the annexes to four Reagan-era treaties, I found exemptions allowing trade partners to apply such controls during financial crises. Capital controls are various measures including (gasp!) taxes designed to prevent speculative bubbles or rapid capital flight.

Tea Partiers should give Obama credit for adhering more strictly to free market orthodoxy on this issue. His officials have made clear they are pushing for a ban on these crisis prevention tools in the Trans-Pacific Partnership (TPP), the first trade deal to be negotiated under Obama’s watch. The eighth round of these nine-party talks is set for September 6-15 in Chicago.

Earlier this year, more than 250 economists sent a letter to the administration urging a re-think. “Given the severity of the global financial crisis and its aftermath, nations will need all the possible tools at their disposal to prevent and mitigate financial crises,” they wrote. Treasury Secretary Timothy Geithner responded by arguing that this was unnecessary because governments could find other ways to deal with volatility. USTR spokeswoman Carol Guthrie confirmed in a Bloomberg interview that U.S. negotiators expect to push for open capital-transfer rules in the Trans-Pacific Partnership negotiations.

That rigid position places the Obama administration to the right not only of Reagan, but also both Bush presidencies and the International Monetary Fund.

After decades of blanket opposition, the IMF now endorses capital controls on inflows of speculative capital under certain circumstances. They have recommended outflows controls in a number of countries facing capital flight, such as Iceland and Ukraine. And they have been even more broadly supportive of emerging market countries that are using controls on inflows to prevent speculative bubbles.

In Brazil, for example, where hot money has driven up the value of the real, the government has imposed a one percent tax on currency derivatives and a six percent tax on foreigners’ purchases of bonds. On August 3, the IMF executive board described the country’s use of capital controls as an “appropriate” tool to manage foreign investment inflows.

A recent IMF report on one of the countries that received a Reagan exception — Bangladesh — credits capital controls with preventing the “global flight to safety” that left so many poor economies in shambles after the crisis erupted in 2008. Bangladesh instead doubled its central bank reserves during that period.

Reagan also allowed crisis-time exceptions in investment treaties with Turkey and Egypt, while a 1985 trade agreement with Israel has no restrictions whatsoever. All three have used these policies in the face of financial volatility.

President George H.W. Bush was no fan of capital controls, but he did allow limited exceptions in the North American Free Trade Agreement and bilateral investment treaties with Sri Lanka and Tunisia. His son’s administration beat back attempts by Singapore and Chile to obtain similar waivers, but softened its stance with South Korea, a country scarred by uncontrolled capital flight in the late-1990s crisis.

Aside from the handful of exceptions, 44 U.S. agreements prohibit capital controls even during a financial collapse. According to the IMF, these deals are outliers. The global norm is to “provide temporary safeguards on capital inflows and outflows to prevent or mitigate financial crises, or defer that matter to the host country’s legislation.” Indeed, as I’ve detailed in this new study, other TPP countries’ existing agreements include broad safeguards.

What can happen without such safeguards? Global corporations and financiers have the power to sue governments that resort to capital controls and demand compensation, even as a nation is reeling from severe economic catastrophe. That’s something Federal Reserve Board member Daniel Tarullo has described as not only “bad financial policy and bad trade policy,” but also “bad foreign policy.”

And yet the Business Roundtable, U.S. Chamber of Commerce, Financial Services Roundtable, and 14 other business groups have called on the administration to reject proposals to permit capital controls under trade agreements.

Thus, while Obama might seem lonely standing so far out on the anti-regulation end of the spectrum on this issue, if he sticks to his guns, he’ll have lots of admirers on Wall Street and in the executive suites.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and served on the Investment Subcommittee of the U.S. State Department’s Advisory Committee on International Economic Policy in 2009.

Unconventional Wisdom: Scorching the Budget

July 28, 2011 ·

Washington, like much of the East Coast, was hit last week with brutally hot temperatures that topped 100 for several days straight. Usually I'm a believer in the science of climate change. My colleague Janet Redman's article, "Connecting Extreme Weather Dots Across the Map" reinforces that belief. But after watching lawmakers in Washington, I'm beginning to think that it’s the hot air emanating from Congress that is behind this recent heat wave.

The rhetoric around the budget and the debt ceiling simply can't get any hotter without melting down the country.

But we continue to be in an era in which Wall Street, instead of Main Street, reigns supreme. IPS expert Sarah Anderson blogged this week about the efforts of Wall Street lobbyists to repeal a simple requirement for companies to report incentive-based pay. Wall Street continues to oppose efforts to shut down overseas tax havens that could restore $1 trillion dollars to U.S. taxpayers, notes IPS expert Chuck Collins. A task force led by IPS expert Miriam Pemberton found that trimming just nine military programs could save $77 billion. And IPS's World Beat editor John Feffer described the devastating effects of President Obama's efforts to push for trade deals that could lead to further job losses and further enrich Wall Street.

Empowering Main Street, as David Korten suggests in his recent New Economy Working Group report, "How to Liberate America from Wall Street Rule," would get us on a better track. So would the commonsense measures that Chuck Collins outlined on the eve of the narrowly averted government shutdown a few months ago.

I tend to agree with the majority of Americans who don't think turning up the rhetorical heat is going to win the day. We need to drop this destructive debate. Our shared economic and physical security depends on all of us working together, bound by shared values of fairness, justice, and equal opportunity.

Meanwhile, we stand in solidarity with the Norwegian people, who suffered a devastating act of violence this week. And we're reminded by Saul Landau's film, Will the Real Terrorist Please Stand Up, which was released nationwide this week, that terrorism is often defined by whose side you are on.

A Government Expense We Would Shut Down: U.S. Trade Representative Office

March 30, 2011 ·

After two months of Egypt, Japan, and Libya dominating the airwaves, the 112th Congress could return to the top of the headlines soon as a government shutdown seems more likely.

Following a series of short-term stopgap funding bills, a $50 billion difference remains between the proposals by top Republican and Democratic leaders. With this in mind, and to fight against the idea that progressives just want to spend our way out of problems, we would like to present a few ideas that might reduce government spending and increase its efficiency at the same time.

The proposed cuts we’ll be laying out in a series of blog posts this week range from military boondoggles to counterproductive drug war policies.

First up in the IPS chopping block is the U.S. Trade Representative Office (USTR). Currently employing a staff of 200 people and leasing real estate in Washington, Brussels, and Geneva, the USTR is an expensive agency, and its work seems increasingly redundant. Sarah Anderson, who directs the Institute's Global Economy project, says:

Trade negotiators aren't following through on President Obama's campaign promises to renegotiate NAFTA and are showing few signs of bringing a fresh approach to talks over new trade deals. If all they’re doing is expanding a model that undermines good jobs and the environment, it would be better to shut down USTR.

This cabinet-level-but-not-technically-in-the-cabinet position has been rumored to actually be in some downsizing plans that would incorporate it into the Department of Commerce. The agency’s chief, Ron Kirk, didn't seem to oppose the rumored move in a recent interview:

It's not a rumor. We've heard of it. We welcome it.... It is hypothetical.... I don't think we should be afraid of stepping back and taking a look and saying what do we do really, really well as USTR, and what do our partners do really well at Commerce or Ag?

The United States has signed 17 free-trade agreements, and is waiting for congressional approval on three more (Colombia, South Korea, and Panama) that the Bush administration negotiated and are similar to atrocious deals like NAFTA. Those agreements are a corporate scam, so why should taxpayers keep funding an agency that despite a change in administration pays its bureaucrats to propose the same thing over and over again?

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