Maybe the Best Way to Help Left Behind Regions Is to Stop Having Policies that Give All the Money to Rich Regions

21st November 2018 Off By binary
start trading binary options

In the wake of Amazon’s decision to locate its new headquarters in two prosperous metro areas, a NYT Upshot piece by Neil Irwin raised the question of what can be done to help the regions that have been left behind. He then turns to various policy proposals intended to help workers in the areas that are not doing well in the current economy.

An alternative approach is to stop pursuing policies that transfer money from the left behind regions to the rich ones. The top of this list would be patent and copyright monopolies. These government-granted monopolies are explicitly designed as tools to promote innovation. Over the last four decades they have been made stronger and longer.

They could alternatively be made shorter and weaker. We could also look to use other, more efficient, mechanisms for financing innovation and creative work. This would mean less money going to the software industry in the Silicon Valley and Seattle, less money going to the entertainment industry in Los Angeles, and less money going to the biotech industry outside of Washington, DC. There could be as much as $1 trillion a year at stake with these monopolies, an amount that is equal to roughly 60 percent of after-tax corporate profits.

Another way to benefit the left behind sectors would be stop doing so much to benefit the financial industry. There are a long list of ways in which the government helps the financial industry (see Rigged, chapter 4), but the most obvious was when the leadership of both parties raced to save the industry from its own incompetence in the 2008 financial crisis. If the market was allowed to work its magic, Goldman Sachs, Citigroup, Bank of America, and many other financial behemoths would have been sent to the dustbin of history. The result would have been a smaller, more efficient industry, with many fewer great fortunes being made by people living in New York City and other financial centers.

A third route is a cleaned up corporate governance structure that made it more difficult for CEOs and top management to rip off the firms they run. As it is the case now, the pay of top management is primarily determined by boards of directors who owe their jobs to the CEOs. The result is a situation where CEO pay is now often 200 to 300 times the pay of ordinary workers. This most immediately comes at the expense of shareholders who have seen much lower returns in the last two decades than in prior years, but it also means more money flowing into cities like New York and San Francisco that house many corporate headquarters. 

These and other policies that restructured the market so as not to redistribute so much income upward would be a good place to start if we are concerned about the left behind region. While transfer policies that largely accept the before-tax distribution of income seem to be more popular in policy circles, they are less likely to be effective than having so much income go to the top in the first place.

The piece also includes an assertion that may have mislead readers. It quotes Clara Hendrickson, a co-author of one of the papers cited in the article:

“What’s increasingly clear after the 2016 election is that the forces that have been really good for the economy in the aggregate, like globalization and technological change, create local shocks that are extremely powerful.”

Actually, it is not clear that these forces, at least as they have been directed over the last four decades, have been really good for the economy in aggregate. This has been a period of slow overall growth, in addition to rising inequality.


Read more about eu binary options trading and CFD brokers