« The Weeds

A progressive case for globalism

2019-07-05

Reed College economist Kimberly Clausing joins Matt to talk about trade and the middle class.

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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Yo. Bismarck has brought me a mph d, and this is Andrew Manga Nellie. We will introduce you to our pod cast way, form the new sedition to the Vocs media Paca Network, so I've spent over ten years reviewing type Gregson consumer electronics for millions of people on the incubation to channel and now on the way form part asked Andrew and I use that experience to dig even deeper into latest tech for smartphones too. I max to electric cars. So if you're gadget lover or attack head or if you just want to figure out whether the latest gadget is worth your harder in cash, give us a lesson sacred fine way, formed the empty beauty pike S on your favorite Pakistan. Every Friday see over there. We find ourselves tongue about trade all the time in the Trump era, but usually it's about something like crazy or weird. Did the president tweeted a bit is actually an important topic that is worth understanding as well. I was really glad to get a chance to sit down with Kimberly, causing she's an economist weed and the author of a book called open. That is all about a trade, globalization and related topics. You know, if you want to know, what's going on in the train globally,
debate. I think you can find this conversation really interesting alone. Welcome to know that preceded the weeds on the box media podcast network. I met with glacis I'm joined today by Kimberly Closing professor reconnects at Red College. The author of a new book called open, the progressive case fir tree, Aid, immigration and global capital- yes right, thank you so much for having me yeah, so that that is a lot of stuff. So, yes, the trade. I, though, I think, is sort of at the at the heart of you know what people worry politically, and I and I think, a very simplistic question. I think a lot of you will have as look the middle class has not done there well over the past. Generations two. At the same time, we ve seen China do really really well, and so
a natural inference. Is we ve had these bad trade deals elites in the United States have sold us out there rich themselves. They ve been rich China and the rest of us have been taking his chin. I take it, that's not how you see it but like what's what's wrong? With that in mind, we see we see who's, one right, chinese people of one which people of one normal Americans have lost Yes, so I agree with some of what you just said in the sense that it does appear the ink inequality and wage stagnation or of real problems for the middle class, and that something that I'm very clear about in that book. But I guess where I differ. the Trump administration and many critics of international trade is this notion that traders is a zero sum game that somehow China's winning came at our expense. So if you look at the past thirty five years, it's true China has done enormous things. I mean it's not just by trade is partly by opening up their economies to being a market economy, instead of so state
in a lot of other things like that, but at the same time that China was growing and succeeding, the United States GDP grew by enough said. If you had divided that extra gdp evenly, every household could have had over twenty thousand dollars of extra income over that period, though relax yeah a seventy percent increase in GDP per capita, over the last thirty five years. So that's a really enormous increase. The problem was that our growth shared and- and I think the reason it wasn't shared- you can't pinot entirely on trade. There's a lot other stuff, it's happening. At the same time, and his eye are you in the book? If you, if you respond to it by restricting trade, you might actually make the problem worse rather than better. Ok. So this is interesting because you know you say right it. It's not easy or sub Trump is a very clear, and I think there is a sort of range of of middle ground that that you can
they are, but there's a sense that people have that there were. You know, industry is that the United States had and that we have now lost an isn't there, something like actually zero sum to that that, like we once had a furniture making industry peril making industry, and now we sort of dough. Oh sure, you know, there's a constant adjustment costs to both trade and capitalism itself said that happen every day. So take the chinese case. It's it's true that they have expanded in sectors where we use to be strong and where we are strong. No longer so, you can look very carefully at what, if the geographic variation in the Chinese. Import risk. Basically, so some places like Mississippi actually had a lot of industries that competed directly with chinese imports, whereas some states, like Nevada, had very few sure jobs that competed with chinese imports and if you use
variation, you can find well, maybe as many as a millionaire, two million, even jobs could have been lost at the expense of these chinese imports. So that's it. That's a very real concern and something I don't take lightly, but there's there's some thanks to keep in mind when one is sort of say: ok, what is the key to help in the middle classes, then restricting trade with China, because, first of all, there is a lot of benefits associated with that Chinese trade is enabled some of our other industries to be much more successful than they would be. Otherwise if they couldn't use, for instance, chinese inputs, their manufacturing processes they wouldn't be competitiveness, world markets and then, for instance, Boeing might have a smaller market share. Well, to Airbus are auto, companies might be less effective and so on and so forth. So that's one issue. Second issue that I think is even more important is that in a vibrant hapless economy like United States theirs,
Tremendous amount of job turn on an ongoing basis and there's always people who losing jobs. There's always a lot of job creation to send the typical quarter in the United States. Over six million jobs are lost and over sixty jobs are created in the net of those two numbers tends to be was happening to the to the jobs numbers that you here and those reports about what that means. Is that, because there's some, turn is always gonna, be a lot of dislocation and harm and people losing their jobs to robots, are domestic competition or changes and tastes right, and so we Ok, we'll all these problems are really because of China, then we're taking up. It was like maybe responsible for one or two million jobs over a decade rate and we're saying ok. What every problem is that then we're gonna be missing, one a whole bunch of other causes, but also a much more direct ways to help workers, because, as we see in already I making, we can go into this- that protecting ourselves from chinese trade actually can in many ways fire and hurt you s workers. So I think this turning point is an important one.
So my my mother was was a graphic designer analogue arab Graphic Design and she you know eventually lost her job, not to imported chinese graphic designers, but to computer right and Israel graphic Seiners, and it is very sad when that happens to somebody and to say. Well, you know in the aggregate, it's like better that we have Computers, I mean, I think, is true, but dozen doesn't address it re right, but so this happens, whether you have traded na re absolutely, and if you look at the: U S manufacturing share of unemployment, sorry of employment
the last sixty seventy years it's to spend on a minor toxic decline, irrespective of what's been going on in other countries, trade policy. So we it's definitely the case that is, our economy has become richer, sometimes of jobs have been displaced and- and that is a very real problem- is a problem that I think that there is a lot of really smart solutions to like we can do wage insurance. We can expand the earned income tax credit. We can do better job supporting communities, but I think the promise of lashing out at our trading partners and thinking that we can go back in time. that that you know that that creates a lot of risk and sort of misunderstood dangers that could harm the very people that were trying to sell to merely so what more candidates? Okay. So here's a few so take the that our latest trade war with China, China's retaliating to that which is expected by raising tariffs on U S. Products, including
for instance, soybeans right. So if you go and you talk to farmers in the upper Midwest, which I had the chance to do recently, because I was there for my daughter's college graduation and yet you talk to some of these people. They are quite upset about the fact that markets are they is to do very well in and they felt that there are competitive and they were competing on sort of market terms with are now closed, after them, in their losing market share and even if the Trump administration, others promise them sort of subsidies, and in response you know they would much rather just sort of compete and keep those products. That's that's one area is that companies and workers that are any export industries get hurt, but us If you look at our General motors, for instance, General Motors paid over a billion dollars and tariffs on steel and other products over the past year or so, and they also closed plants.
oh hi, a great, and that was the only reason they close plants in Ohio. But women. We put tariffs on intermediate products like steel, like some other input in mission simple machinery and things like that. It makes manufacturing in the U S more expensive, which causes a new set of sharks, rights that we talked about the sharks coming from the chinese imports, but we're gonna get new shocks coming from these tariffs right and so those are all really big costs and that even before we get to what happens to the grocery store, and so I guess you know, the story here is you either should have a systemic way of taking care of people who suffer economic problems are you all right and if you do, then this trade problems, or maybe not so bad, and if you don't than trying to address it, just with trade, is not really gonna generate stability and peace. Lives because I don't know it's like the balloon pushes and other direction
Actually, I'm you know and you create new types of disruption and actually you sort of destabilize people's lives, because there are losing jobs that they could have had and then having to switch sectors because we're artificially encouraging, say you steal, but were artificially discouraging all the industries that use steel rate, so that creates its own set of disruptions, but so in in political terms. I think you often hear this sort of case for trade made around or export. Industry is right when transpacific partnership was pending. You heard a lot about the said that this was good, because we were gonna, get access to these new asian markets, but then Trumps logic on here is yes, we could have tit for tat retaliation, but ultimately China exports more to the? U S than we export to China Right we're running a trade deficit. So if we go to zero, that's can advance the United States, so we have the upper hand in the negotiation. Yes, I think
thing is really abundantly clear. Is that the administration doesn't understand the basic economics of trade deficit in surplus. So let's first with via bilateral surpluses and deficits, shouldn't be a concern, so it would be odd. In fact, if there were bilateral trade balance was, would imply that every relationship there's an equal and opposite. Need to trade, sovereign, so bilaterals is to countries that certain countries, radio, ass in the Bahamas, exactly or or imagine yourself right, you probably run a trade surplus with Fox media use your services to them and they pay you something right, but you run a trade deficit with your local grocery store, and that's because you know you don't want to do your shopping vocs, media and you dont want to sell your labour to the grocery store, so it sort of make sense there that the bilateral things would not be balanced. Now, if you look at the overall, if you take a country's overall surplus, that sort of like asking does Matt each year earn enough to pay for the thing.
He wants to buy right, and the same is true. For countries like the United States is consuming more than is producing, then it's gonna run a trade deficit and thence. That's really why we run our trade deficits year after year is because, if you look at us as a country, our consumption exceeds our income were not great savers as private citizens. The government is not good at saving money; instead, it runs a deficit and sorrow, free and every year runs a deficit in that's just sort of an arithmetic truth? trees that are running these big over all deficits are borrowers, Countries that are running the surpluses are London, this is just like we do not- economics, tax, rags and people down. Don't know a rapid, So the idea of this is that you have it in each country a domestic savings equilibria right and that its those domestic factors determine if you have a trade balance or not right and that the current trade PA
See is not what he arrives. That's right! His anger, he could have a fifteen percent tariff on everything. But as long as the private sector savings raise low, the government deficit is big, we're still gonna be importing more absolute lay and, in fact, if you look at the at the trade deficit numbers sense, all these tariffs have come into place. We really has an improved and one of the reasons it hasn't cause. At the same time, we ve been doing things like expanding the budget deficit by giving away all these max goods. You know in and doing other things that affect those those big savings balances and this is one of the big ironies actually in the tax bill rate- is not going to the text will increase the deficit, but the specific logic of the tax bill was to try to make the United States a more attractive place for foreign investment. by which I mean I think I understand. Nor do I see it this way. Rapid. These are the invoices of each other right. If you attract foreign money,
You didn't, we use the money to buy foreign goods right exactly so, and that's exactly right. It's an equal and opposite things. Our borrowing is the same size and sort of exact magnitude is. Is that trade deficit and that's just an accounting identity. That's not any sort of fancy fury, it's always true for all countries and hot times the borrowers are the ones with the deficits and savers are the ones that surpluses and so is so, for instance, these trade policies, probably we're gonna, divert our trade potentially light to other countries that were not targeting, but it's really likely to effect this overall yeah so that these are coming identity. I mean again, it's so good trouble, often say we're losing three hundred billion dollars a year. Right, but you can t actually lose money in that sense right. It's not do not physical scarce physical commodity. Surprise how good
however much dollars go abroad, they like mathematically, they have to come back, yes, and also. We could argue that work were actually the ones advantage. We got all this stuff run. They get less stuff right, so it's like every year. They send You know a hundred units of stuff and we send them a smaller number of units stuff we could say: The winners from this we get a lot more of their things than they got of ours rate and in exchange they get these little slip of paper that say that we're going give them more later right, but that's the that's the borrowing, but so ok, but now The other thing that I remember from college economics is that of the trade bounds is driven by domestic savings. also a low income. Fast growing country like China should be far away.
Right and they're, not yes, other there is. There are several puzzles actually in this literature one as you might think. Okay well, capital should be more useful in poor countries that they should be borrowing on that front, sure. But one thing that we notice for me sort of look at poor countries is that there are some of each type just laid their rich countries that are that it there's some of it. In Brazil. Germany saves the Latin, they run surpluses and we don't. We run deficits and China runs a surplus typically, but Mexico runs a deficit. If you look at it relative to the entire rest of the world, so I think what tends to die the aid is isn't so much just whether you're, rich or poor, but some the savings habits- and you know even cultural things- can affect savings that how much people think they need to save or whether it is a safety net for old people's. If there isn't that he might be more likely to save for those reasons and says so. In a country like China, sometimes savings rates have been as high as fifty percent ratings for saving like half of every
dollar as a country and so with such extremely high savings rate. Even if investment is very high, which it is also in China, there investing more as a share of GDP than we are, but because their say is even higher than their investment there, not lenders and typical yours. But these are policy choices to right. I mean it's, even though its not trade policy, exactly that the chinese state acts to suppress domestic cats, Shin like they, even though the even though they have pictures and now on their money like They don't have a real welfare state. They don't do much. Age provision and like the they could do that way, This could be the substance of a bilateral trade dialogue.
Yeah. I know it is like some of our issues with China actually little bit out of date in over his will look at concerns about currency manipulation, urine, stands or concerns that their suppressing consumption or concerns that they're not investing enough publicly a lot of those insured about data they ve done a lot of public investment of late. A consumption is rising lot fast. I have been a decade ago, you know so and in many recent instances they actually intervene to prop up rather than devalue their currency. You know, so it's important to not be fighting yesterday's war to send it can I just old? Some of them are older vestiges of the pass. We live with a lot of noise between the pings, the dings, the emails labelled urgent. That aren't really that urgent, it's hard to cut through the static zero. When, on the things that really matter just like, we can train our bodies to be better running faster lifting heavier. We could train our minds to stay focused to all the noise. We live with step. One download head space, its basis
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something worse about sort of all, giving each other haircuts rather than making we'll things. Yes, I guess it depends on how you think of services, jobs and that sort of two types of services At least I am more than that? I'm uh, there's some services, daddy, you think of lights, are like falling short of the gap or are giving someone a haircut or waiting tables that sound like were low age, not that fund new jobs, but there are some services jobs which in fact, you and export and are a lot of fun. So what I do I'm a professor of economics you may not think of that is an export good, but I have a lot of international students. When international students come to class, they pay twitching dollars that our effect,
the? U S, service, exports right, and that is a really kind of a cool industry to be export angers for exploiting higher education to the people of the world. Right. It's it's good! For those people, because they get a better education, presumably than they would have it home, where they wouldn't have made the trip for it is also good for the United States, because then we have access to some the brightest minds in the world to come here and study. It also so those types of service professions that that are in many cases expanding and we could also include others, financial services, entertainment, high tech types of things. You know some of those jobs are actually kind of cool vandams in some. Those services or even tradable right. So it's not always the case that just look more manufacturing is always better. Can it depends on what your comparing it with, but I mean do you mean battering. Work was associated with a certain kind of
high wages and labour unions and admit that so far I mean, I think. One thing that that you might say about this is sort of fear. E trade has not that much to do with the story of middle classes line. Or what have we manage aids, but in practice it does because what we did was we decimated unionized middle class, manufacturing jobs and sort of the aid. In exchange, a lot of luck, Walmart and Ober driving re emanate. I agree that trade has contributed to that for sure and something that I was in the book, but there's a lot of other things that we could blame for. The decline of high, highly unionized high wage middle class job
and so some that I point to our technological change, which is, of course you know related to trade, is maybe be pursue automation impart to compete in the world economy, so that you know related, but it's something that would occur even if we put sky high tariffs and everything we would probably still be doing that rights are there. One thing but market power is another issue that I think is under appreciated. Other the extent to which large companies and firms with more market share have sort of suppress wages and in markets they are dominant and so that I think it is something that we really
on the rise over, this last generation has contributed to the squeezing of labour and the sort of outsource, even domestic outsourcing, of some types of jobs and a company. So if you, if you're at at a big company that pays high wages, it may pay pay high wages to its workers, but it may also outsource HR, her janitorial services or the food services. You know, and so we get these labour markets that are intensely competitive, There are benefiting from the gains of these big fancied firms later so. Market power and technological change in policy changes to changes in our labour laws and changes in our tax laws. Ass were of a turbo charge. Some of these other issues to an end. So I think when we look at the home a large of causes? I think that problem I sort of just singling out trade is that if we just respond, that one area where
ignoring you know, maybe five six said the problem: well, while impoverishing other countries and making our the shopping trips of poor people much more expensive. Because if you look at terrorists there, there regressive tax the poor spent about three times as much of their income on tariffs. Then the rich due in the United, so that you could is that just because sort of consumption, It is in general. Have that were this structure. Is there something special traded commodity? It is actually at these three reasons. One is consumption taxes in general, regressive because poor people don't say it and rich people do there other reasons. Poor people tend to conceal. the higher share of imports than rich people, because they're just consume more traded goods, and so you might imagine, for instance, going to the grocery store and the types of products that you buy. It walmart my look different from the tapes that you by your locals farmers, marketing, you're, sort of a man
in which consumers get sorted into which store right, there's gonna, be more imports and in the low income stores. Typically, and the third reason. Actually, it turns out that the pattern of our trade protection puts higher tariffs on products tat. Poor people consume disproportionately. So if you look at shoes, for instance, like plastic and cheap shoes, actually have higher tariff rates than fine leather shoes, cotton teachers have higher tariff rates in Kashmir, sweaters rights so because of the pattern of our protection. In addition to those other, two factors are really highly regressive somethin tax. It's it's. It's kind of an ironic responds to the concerns of the poor to be like you know what we're gonna do. You're gonna make the things that you buy more expensive, so it I was in Brussels years ago for the sort of launch of Tea Tipp that
the Atlantic Unafraid investment partnership that mind about happening, but it was fascinating to me that would they were talking about in talking about having those talks was like almost like it wasn't it all tariffs really weight. It was all about regulations and the idea that any it makes sense when, when you start to think about it, but products are regulated by most things. And if the regulations are different in different places, then that is a barrier to trade and so the cars that are even though we have european cars in the. U S do not the same, because the regulations are different, so you you actually can't import a card that a french person would drive at and vice versa, but that gets the trade talks. Really. I think, like way outside
the economics textbook as discussion of trade into an area? I mean a lot of areas where people start to have suspicions yet about what's going on Nez. Unlike is this just a stocking horse to deal, delete everything, because you can say what every regulation is a kind of a trade barrier. So if we're just man in trade barriers we ve got at dinner. Will I get nine corporate lobbyists together in room- and they say ah here so I think people have legitimate worried about some of the content of trade agreements in the past. In two examples that comes to mind or this investors state dispute settlement procedures where, for instance, companies are authorized to sue states about regulations that they feel a ban on
air of effectively. I'm in another is intellectual property protection. Where that the? U S, a sort of foisted intellectual property protection for are dancing companies onto poor countries. That may not be able to afford to have such long on their drugs, or tell things like that. So those are examples where corporate interests of sort of overtaken eight agreement negotiations to try to push the agenda that this right for them, but whether certainly concern and why wouldn't include those chapters in my dream, trade negotiations of the future. There also ways in which trade agreements can raise standards, so Canada and the EU recently signed a trade agreement, and they agreed in very explicit terms that they were going to make sure to keep off their environment and chill regulations you know and that they were completely authorized to have as many has hit wanted as long as they apply them and uniform fashion to both Canadians. And so you couldn't, for instance, if you're the EU
when you have a special one for Canada that was more harsh than the one I had for your own firms and end those those types of Modern trade agreements and I end teepee- had some of these provisions do that protected environmental regulation and that harmonised labour standards more upwards, then downwards of Vietnam, for instance, under the sea beauty you, which is the acronym that was left after the U S left the teepee and the remaining eleven countries joined together of Vietnam and and others agreed to have higher labour rights than they had prior right in part as a condition to join in the agreement. So it doesn't have to be a race to the bottom them. You know the very fact that it's called a trade agreement doesn't mean have to prejudice corporate interests in there's been sort of a movement I think throughout history, to including, I think more of the things said
the left will hold is nearing its as well. You talked about climate change, rolodex rightward, sexual Shoreham, important because good, like a small country, its exit emissions are not globally significant and yet, if every small country doesn't restrain emissions ray you're, not gonna, get anywhere, so you need, some mecca obviously the U S is at the moment not doing well but we believe a word hearing, you ain't right in Gaza, where, like it I like, even if we did everything we could in the other countries down right, it's this massive free rider problem. You kind of hope that the other people do it. But if you do it yourself, it's not necessarily in your interest rates. Are there's this big argument for international cooperation. When I actually think the argument for trade agreements and for a climate agreements is really similar to the argument from God like if you just lead people do their own thing without rules right
and you're not gonna have as good an outcome as if you can solve some of these problems of collective action that the government is there to solve. And so you can view. International agreements is also solving those collective action problems, because maybe no individual or no company wants to reduce their carbon emissions by themselves, and maybe no country wants to tackle it if the other one aren't. But if you can agree with others, you know it sounds kind of utopian today to even use the sentences. The habit data than Europe stand as chance of solving these. Let me well, because what we were doing, what the? U S was doing was going on onto a number of you stated South EAST asian countries insane basically we'll let you in on the textile exports game. If you adopt our pharmaceutical pen role here- and we could have said the let you in on the textile exports game, if you adopt environment, whirls, absolutely right. So I mean that really is just a question. I mean this on a question of like: is it good to have trade agreements but of leg
boy, what they know who cleans Zactly and I think of France's There- be room for a? U S: EU agreement on solving some of these tax competition problems rank as both the European Union and the United States are wrestling with the fact. The multinational companies are really good at avoiding taxes right. So if you, if you can get governments to ban together and we like okay, we may not agree on the tax rate, prohibition, agree on the tax rate, but we can agree on provisions that will prevent companies from creating incumbents tax. Nowhere, for I mean it, so, let's, let's get together and agree on that. You know and that's the kind of thing would also could, I think, be folded into a trade agreement, as you ve got the sort of carrot there of market access to bring the business community, and in doing so you can throw in some some other vegetables too
so, let's lights up about taxes, glass wines are being a surprising amount of your back again, and you know so I mean the trembling restrictions. View has been that they they have, this Cornwall Populous, take on trade and then giant corporate tax. That which is not maybe not so populist yeah, but this is a big part of globalization. Weight is profit shifted, and you know I was in an Ireland on vacation and there's. These lovely, let all european headquarters the big american technology companies, which is fine, doubles the nice city. You now you gotta have your office somewhere, but a really says Bishop amount of profit seem to be a crew.
To those Dublin offices. Just to start with the beginning of your question in it and always struck me a sort of odd that anyone could call Trump a populist and I'm emanating do in my book cause. He tries to save himself that way about. But if you look at the actual contents of the policies, Lake were cut and going back to the last gilded age in terms of putting more of the costs of raising the government on tariffs, regimen, which are, as we pointed out, a regressive and then massively cutting taxes for those at the top of the distribution is really just not a very rare. It's really hard to characterize something: worsens: income inequality with both hands as populist, but but turning to the profit shifting issue I mean I do think there are both sort of regressive and progressive ways to respond to the challenges of globalization. I think what we ve seen so far as the regressive response
make things more expensive for poor people, but that their progressive responses to among one response to say: ok, we recognise the capital is mobile and we recognise that some labors or mobile and we recognise that goods and services for mobile. So how do we modernize our tax system to account for that right right now we have a tax system is incredibly leaky and a lot of work that I have done suggests that we lose over a hundred billion dollars a year due to profit shifting of companies. That's a lot of money that we could be spending on There are things and they saw their some well known solutions to that profit. Shifting that we could pursue. I wanted the disappointing things about that tax bill that they passed the end of twenty seventeen. It just wanting to effect last year is that if you look at the international provisions of that legislation,
and despite having this huge profit, shifting problem there, not raising any money by tackling that probably sort of make the problem with worse with one hand and better sit there, and then they end up getting no extra revenue from the international provisions, which is really surprising, giving how much how much we were losing to having companies book their money in Bermuda or the case, in their places. So so how does that weren't clear to how to have had I get to have all my profits being task for you in the Cayman islands? Yes, there are several. You can do it. One is by sort of transferring your intellectual property to the island jurisdiction right effectively, and maybe you have a cost sharing agreement with your Bermuda Philippe, where they ve no share in the costs of creating your intellectual property at some early stage, but then they end up owning it right So, for instance, you know you could have them if you're Starbucks would have them only Starbucks experience.
and when, because they own that re use, sort of arrange your financial matters such that every affiliate, preventive phase them for the privilege of creating this Starbucks experience right and then than the providence of accruing there, rather than here and rain, and that's a sort of a simplified version of what's happening but effectively you're doing things with your affiliates and other countries to make them look artificially profitable. And you look artificially unprofitable. You know an end and the U S multinationals, but very good at this fur for actually quite a long time and you don't general electric, for instance, head about a decade where they were making billions billions of dollars on the planet, but they were getting a refund most years from the? U S government, because they arranged to have the level of tax here so why I mean what do you do about this? Yet so there's a couple different solutions you can pursue. If you want to be more revolutionary, for instance, I am you could tax
foreign income the way we tax national income in United States says it doesn't actually sound that revolutionary put it that way, but in Oregon or California or Virginia Ray. We don't ask companies to tell us how much they really are. During our California Virginia. We asked what how much did you United States the number, and then we apportion that to Oregon California Virginia with a formula react as you could do that their nationally to you could say to to intolerable use it well how much on the planet, and then you assign some fraction of that global income to the United States based on things like. Where are your customers? Where are your employees, rain and and and that's a system that is worth really well the sub national level and could, with some time to study, work well internationally, but it's not kind of a day. One type proposal the, but do the second. You know you, you got control of Congress or something so in terms of quick things that you could do. You could strengthen the minimum tax, there's the sort of the beginnings of a minimum.
tax in this new tax bill- and you can make it tougher such that, no matter where you earned the income, you immediately pay tax in the United States, there's something in there now, but because it has one, it has a rate. This half the? U S, rates were saying you're discounted to half the? U S rate, to or sort of exempting that first, ten percent return on assets from taxation on three were letting companies average their foreign income before they even apply the minimum tax. And so, if you, if you change those three features, you bet make the minimum tax alot tougher and start to get a lot of that revenue. That way. So I think sometimes you know people can look at this and it can be like baffling lies. Like how come republicans are so lax about? Does and you know are they on the tape Clyde what's going on, and the reason it seems to me in my experience is: if you two in a well credential, knowledgeable, conservative people,
they will say that taxing corporate income is just actually really bad and harmful. oh well, they agree that the current system is not like great they're, not super interested in clamping down on corporate tax avoidance, because they think the whole concept is ill considered, and I disagree very strongly with that. After a couple of reasons, one, if you think about corporate taxes, really are only shot attacks him most? U S! Equity income, because, as it turns out, seventy percent of all? U S, capital income doesn't get taxed at the individual level by the? U S:
So, let's, like capital gains a dead, oh yeah, that's a cap against evidence of France's you might say well or why not? You know, but if you stop it think about it. We have retired and accounts or tax free, because their enemies, tax, privileged areas and things like that. Five, twenty nine accounts for college savings or tax free, endowments and nonprofits have under capital income that doesn't get taxed at the individual lay level foreigners are investing in the stock market and their tax. Their individual taxes aren't page of the. U S, government, and also, if you add, all that up, that's about seventy percent of all the cap low income! That's in! U S corporate form rate, as if you dont tax it of the corporate level. You really there's only a small sliver of it. That's tax at the individual love on the individual level will giving huge preferences. You know that cap against dividends rates are much lower than labour raids, you're allowed to step up and basis. It does so that if you have a lot of stock and you die, you gets his furtive wipe out the capital game without passing it on to
to your airs, you know so that were actually a very light capital taxation, you known. So if you asked the same concern of economists like- is that ok, some of them would be like a capital which attacks it right. You know, but I, but I don't think, there's irish fury are evident behind the supposition so one the theory that their basing these arguments on the very people who wrote those papers have changed their minds when they wrote more complicated papers with more realistic assumptions right to this bunny of of theoretical works that I think, belies the idea that we should and tax capital, but also adjust just look at the data like look at all the countries that have cut capital axes and ass did that redound the glory of their workers, and the answer is no like any country after country. We see these big corporate tax cuts and then, if you look at what happened, so the wages of their workers is really clear, who benefits from that a shareholder So I think a lot of the the interest in innovation in the corporate taxes come for people who don't want capital to be taxed at all in her perfectly comfortable too,
I don't. I to me I mean this is this: is the deep serve linkage and what you were saying about globalization right, which is that there is a perception that a policy changes have been made that have helped enrich capital honours at the expense of workers, and an important question is like which policy change. He was that right right and the moon to not tax capital honours on their profits. That fit has had a dream about. I'd like in a very clear and direct way in taxes are such a powerful policy to one. If you look at the kind of things that we subjected workers to over the last generation, others forces were just talking about market power, technology, trade, you're asking what was the optimal tax policy response to that.
clear that we should be making the system more progressive right. We should be having more money to the workers and taking more from the winners of of all of those games rate from their monopoly power people and people who own the robots and the shareholders of companies that export. But instead it seems like our response- and you can look at congressional budget office date on as the tax systems actually less redistributive now than it was at the getting of that period right, so we ve moved in the opposite direction, and this latest tax bill is just the latest big step in the opposite direction. I mean the rent. There was some helpful things along the way to, but on net. If you look at what the tax systems doing it's less progressive than it used to be, but a lot of people have the perception that there's a linkage between these chain. It is either a sort of left critique that globalization has made it impossible to read late and govern national economies or from the business community like well, the globalized world. We need to be competitive ride like isn't. It
Is it is there something to that that like well capitals ball goods are mobile. You know burger king and become TIM Hortense? If it wants to and like we, up to now. We now the either re Erech economic sovereignty. more, we need to surrender to these these global capital forces the answer to all those people. I say: please read my book. The second I have lots of ideas and their about how we can. We can really respond to these concerns, but in particular I think, what's really lacking, isn't the policy solutions right? We ve got good ways to tax capital in a global economy, and I've got a list of them in the great I'm and we ve got good ways to help workers to expand the earned income tax credit give freaked me. I still have wage assurance. We ve got all these great ideas or we're missing as not the feasibility of doing it.
I will call me we're missing political well right, so we need a when elections. Are people care about these issues but be have the political will to stand up to the interests that are against it and actually implement is well known, efficient policies that can both help workers, and that can taxes have really benefit and to make to make this event? or, if not just turn non zero sum game for the world, but a non zero sum game for the Americans. People often ask me of prosecuting the mob is like the movies. Well there is violence, he cracks disguised over their head and a pop. Just like a melancholy. There are heads, so wasn't just permission to take em apple permission to take out his own nephew, but after taking down over one hundred mobsters, I can tell you this is the real thing is much more interesting
NL. We wholly former mob prosecutor and host of the new pod cast up against a man up against the mob lists bail on the world's most secretive criminal organization, La Cosa, Nostra we'll talk to process Peters, former mobsters, an undercover agents and and Hollywood. All these stories are true. New episodes drop every Wednesday starting September, eighth, listen and follow up Hence the Bob on Apple Podcast, Spotify or your favorite podcast, APP, hey, are you hungry, for I had taken her weight is favoured Phil. I like doing johnson- and I personally think he is the greatest action star of his time or a wild and will take on a cold classic
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warm or a clear that in a lot of ways, immigration is at the emotional heart of political backlash and in many countries, and You know this is an issue that has some economic dimensions, but also a lot of not economic dimensions but you're. An economy says a westwards once taken up, so they economics, I think just unbelievably clear that immigrants, her net boon to the US economy, it's just, National Academy of Sciences, review that took all sorts of researchers from across the political spectrum and have them sort of synthesize off the literature and end it quite clear that immigrants are good for economic growth. There are good for almost all workers in the economy. There, the immigration, for themselves is good, for innovation is good, for you know you just kind of lists of the benefits and have quite large and small, so helpful by the way for our demographic pressures of having one of age
population, but I think there are still some concern. Some economic concerns about immigrants on theirs concerns that they might hurt. workers in some sectors rate, because you might think well sensors larger sum I've, labour right, they're, going to take some jobs. Now I mean, of course, we need to remember that they also create jobs. The you know, like half of our billion dollar start ups, were founded by immigrants there, forty percent of fortune, five hundred companies were founded by an emigrant ornamented, shall use it at creating jobs as well as filling jobs, and that's an important interim. But there is some concern about that. There's a little bit of evidence not elaborate a little bit of evidence that maybe I'm fourteen workers and for recent waves of immigrants that some of those workers can be could be heard, I think this this real ways. Remembrance point there is always an interesting wifi, because I mean it's. It's revealing politically read that the the clearest evidence for some category of workers being hurt by.
a person from Nicaragua coming tomorrow is it is the people who came from Nicaragua yesterday. Who lose out because the very similar great an end to me. This is less of a concern, because if you look at the economic benefits to migrants from moving to the United States, there very large, like on average, do you get like four times the wage we get your home country, maybe five, maybe ten in some cases, by moving to the United States. If that means that in your next decade or so, your wage growth is lower because were letting in more but like you are you know it's not necessarily the universe off than if you stayed home right assignment. I think I think, there's just a really compelling strong case for in a more rather than less immigration. I think we're This argument gets harder as if he were view of this economic governance and allowed people like why agree with chapter eight invocation seems to be good, but why is it that people this
good bye and then there's a couple things to point out. One is that if you actually look at point data people don't like any other, most people are fine with immigrants and in the states where their most fine with immigrants are the states where the immigrants are like the places where people are highly suspicious about immigrants are often states with very few emigrants both into That is even some of these cultural fears are sort of miss under. You know if you look at the actual data, looks like immigrants or assimilating faster than they used to the simile. Past generations. It looks like their crime rates are lower than than people who were born in the United States. You know it looks like a net their strengthening, rather than weakening the institutions of their community. So it's it's really just two may go illogical case against. I do think you. You had an anecdote in their, though that that sort of God at this, which was you turn to others, grocery store, write em
I just gotta wait what what what was was the idea the grocery store in Belgium, yeah yeah. So I was making the point in the book that you know the United States is. It is a nation and emigrants heart. Her really sort of pinpoints are: are american trades aside from noting that sort of a hotchpotch of the immigrants that have come to the United States, and so I was in a grocery store and in Brussels where I live for a year when I was younger person- and I was shopping at this grocery store that I think cater to Ebay. crash because they had little flags and different isles that showed you like. Oh this is norwegian food in the swedish food and and in the distance I saw stars and stripes eyes like how this exciting. Let's go see what american food was there and I got over to the stars and stripes and there they were alike. Means and tortillas and saucers and was all Mexico is which is awesome, because I've met Miss that from being an american albinos,
was it was sort of reminder that, in a way that there is an american cuisine, there's just hodgepodge of our immigrant cuisines and that's why our food is better than it would be As you know, I was just didn't just in Ireland and in its it striking that a lot of the foods in a way at home are very present there. everywhere you know hamburgers and pizza and stuff like that but like what really does come across as I would it distinctively american, as opposed to Irish, say, is, but we would call mexican food right, there's, no they're, no black beans in a regular supermarket in Dublin but I did see like one supermarket- that was Bigger- had like an american section and they had old, El Paso TAT S out there, but I feel that this sort of cut to the the hard
whether there's some people like, I think you and I and probably most weeds listeners- are of the the social Class in America that finds this incredibly charming. The discovery that, like the real american food, is textbooks but then there is the sense in which ok, no like that is changing american culture ride like in nineteen fifty. Nobody would have said that the real american food was tacos. Never they might have some real american food is other things that we borrowed from prior to inefficient dinner, which themselves reveal fight earlier. You know, like I mean italian immigrants used to be vilified, irish immigrants, history vilify! If you go back far enough, you can find people vilified any any group. So I guess I the one one lesson from the american experiences that hopefully we can overcome. You know these waves of Villefort Asian and realise that, on that, these groups make us stronger, and I think, there's just
We're welcoming evidence for that. I need you seem to me like a difference between the: U S in european immigration contacts that we do have that trajectory where you can you point in America to a time at which pizza spaghetti were like. Incredibly exotic. and now they're very varied, normalized and say that you know like in a patron. Way with a flag and stuff like this. This is what America is all about in a way that, like I'm, not sure that is what Denmark is all about, and I think one of the interesting contrasts here is actually, if you look at european immigration patterns like a lot of european countries, now have a higher share foreign born population, the United States, which is surprising, but what they dont have as hundreds of years of history, where that was true right so for them, and spend a much more rapid increase in over a shorter period of time in part because of the syrian conflict and in part because of other other economic
There is but a, but for us it is this really long, historical trajectory. It is other, even so when, when you got to policy recommendations, your ideas are denied that different from trumpet ministrations, for I would not say that to the exit to say that, while there should be maybe more focus on skills, and yet why occasion why I say there should be more skilled immigration. At the same time, they were also increasing. So if you look, I say I suggest an increase in the unskilled, as well as an increase in the skill and passed a sustained ship for the undocumented compassionate sight again ass. You know in all those areas, I'm way more pro immigrant than anyone you could find and then the trumpet ministration, because I kind of one more of every type. of immigrant. So their view is, we should cut legal immigration and half, but make it more school. Biased and
Kick everybody out here and you're saying now: we should have a Patsy citizenship. We shared maybe shift more refugee is and fewer like sibling, and also increase skilled immigrants, but I was in this interesting, where the empirical evidence has more of a consensus, threaten the politics vs. An empirical evidence is, if so, Crystal clear about high skilled immigrants that I think even the tramp administration, to find reasons to like them, although I would point out that there also discouraging them at the same time, because them their slowing down the processing of certain types of visas, their lorries are enticed quarters that would have attracted yes it. So I think we can exaggerate their their professed enthusiasm, hair, but but the empirical as is really strong, the high skilled or just a boon. I think the arguments that are making for increasing the lowest,
Old ones are partly demographic and then I think it helps to have workers of every type helps to have less aging population and partly moral. I think you know A reason that many of us learned that parliament the base the statue of liberty when we were children- and I think setting that aside- makes us so worse can free site. I'd rather have us, have a you know, an ethical obligation to the world's poor does it mean a completely open borders, but it means you now have an open heart when people nearby need a place right in name. It was reiterating that the benefits of immigration to the immigrants are a very large something like what he's is like a five fold increase on average and and and and it's a huge efficiency gains from the world perspective, and these people gone to be Americans right. I mean a very patriotic and oil Americans and I also tell a story about the then, if you perhaps Arachosia Sonny
giant, but that that company was founded by refugee who came here, we were the only country that will take him at the time and he named the company after the boat, the tea You can run on an end. So whenever you have that are just as we should be thinking about good reasons to be kind to refugees, because he kept all that production, the United States in part because he views it is as if the patriotic thing to do with issues trap. I was gonna sprang on you at the. U tell you tell the story right and the guy that their phone Zaragoza guy Refugee- he loves America, so he keeps his factory in the United States as a great patria. But they're back when we were talking about trade rang something you should have to buy it now. I remember when, but when you tell a story right, so it is very clear what the point of that story is right. Did he loves? America keeps his factory here, but Does that mean that it would be
more more patriotic for other companies to give us some of that same consideration, that why enemies refugees do. I think I appreciate this governance with which you made that point and I certainly will be in favour of changing the tax code, for instance, that we were actually encouraging with it with our tax system companies to offshore which we do presently or giving companies half the tax rate. If their offshore relative to denies its there's all sorts of things, we could do to make production the United States more attractive and to make work on United States nicer for the workers to, but I would be, I guess, a little loathe to make it.
all of these decisions. Moral, even though I like time that story about this or address ass, collecting a very sweet and reminds us that you are like refugees do become these like very attached, Americans, which is great, but I dont think every company should have to have every part of their production process in the United States. I mean, I think, by splitting up these tasks and moving them across borders we actually made. Far more efficient processes, and when we make for more interconnected economies nets that can be a really nice thing like on one of the big The chief of the European Union was to make Europe so interconnected that things like world, where women were were too were less attractive start because you need at each other raid and eight. I think that's a beautiful you're. So I think that an important part of the birth rate is to try to make a case for a worldview right and not justice. Specific kind of thing about this tariff for that,
but the idea that it is better to be more interdependent rather than the glass ass Yet- and I firmly hold that to be true, not just because of the gains from space position and which are you know, it's true commitment. You can sort of. Imagine yourself, friends, you tried to do everything yourself, you and there's not a quicker path to poverty. I can imagine if then me trying to make my own food, for instance Ray. I would end up starving to death, but so I think you know there's all sorts of efficiency gains from it, but I also think it just as you know, the human experiment is a giant one. You know, and I and I think, that being dependent on other countries and having interactions with other countries and having global relationships makes it a lot easier when we have problems like climate change or terrorism or global health problems to solve. If we ve got partners- and we ve got a shared human experience, where not all kind of separate into
little fiefdoms said that you set a snarling at each other that that's great I'll. Let you go soon were just close out, like is their work with which I have asked you. What did we mess here? I would have wanted the important well. I think I guess the question I would ask for this is what you know where we should go from here and what is the best response having suffered through the first few years of the Trumpet Ministry out. Where do we go from here? How do I add a we rebuild yeah? I think that what I always would suggest when you ve got a problem, is to try to take the policies that girl most directly to that problem. So we do have a real one with middle class which stagnating income inequality- and we ve got just a host of policy tools- that I talk about Lee in the book that are really effective at responding to those, and so whenever we have a problem, be climate change or or economic stagnation.
and, I think, taking the tools that go directly to the problem. Instead of blaming a foreigner and hoping that somehow trickled down to help the problem, I think I think that's what I would really and encourage people to do is to sort of thing. Is this the most directly to that with that problem right? So if you want higher wages more serious than do the programmes, the do their own income tax got. Expansion is a really effective way to move money to help workers who aren't making enough unites ends proven we ve got an already. We can make it more generous, and that would be really where's. This corporate tax cuts to shareholders are very indirect mechanism and helping workers and, and so is a tariff rate. I mean we're counting on you know a handful of steel workers to raise the middle class and that's a while we're simultaneously hurting Otto Prison swayed information that is not an effective, straightforward way to help workers, ok, fantastic thank you so much, Professor Kimberly closing for from college college. You Jeff Gale
our producer and, of course, to bird fingertip and the weeds will be back on Tuesday.
Transcript generated on 2021-09-10.