Comments & Context

Microscopic atmospheric particles & Pioneer 10

Alexander Morse, researcher at Rockefeller Institute, reports CO₂ emissions will fall 5% this year. CO₂ has fallen by 20% in Wuhan, while microscopic atmospheric debris fell by 71% since March 24th in India.

Neither Morse, nor we, are suggesting this is the solution to our ecological problems, or that we focus on anything outside health and relief right now, but such a dramatic reduction is important knowledge.

(Pioneer 10’s images of Jupiter, from NASA, where everything is free.)

For the future, we could try carbon-cost programs. Some estimates of social costs per ton run to $400: The Obama administration estimated between $42 to $62 per ton; the Trump administration between $1 to $7 per ton.

So let’s turn to the states, where initiatives have generated about 50% of growth in renewables. And not a zero sum: Between 1970 and 2017 a witch’s brew of pollutants fell by 73%, while GDP grew by 270%.

If you can see the western sky this evening, look for red giant Alderbaran blazing to the left of Venus.

If all is well, Pioneer 10, launched in 1972 & last heard from across 7.6B miles in 2003, is still heading out. Weighing <600 pounds, carrying pictures of a man & a woman, the solar system, and how to find us relative to 14 pulsars, it should pass Aldebaran in 2 million years. We know how to do this stuff. Analysis here: Cool graphic:

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In the US profits = 31% of wage bill; make that 258% in Luxembourg

The Washington Post’s Dana Milbank writes that one of the largest provisions in the relief bill, a $170 billion tax giveaway, “appears to be tailor-made for wealthy real estate investors like Donald Trump and his son-in-law Jared Kushner.” That’s more than the $100 billion for hospitals, and the $150 billion for state and local governments. While we are all wondering why the pandemic should allow these guys to write off losses from before the pandemic, as in 2018 and 2019, we thought we’d dust off another snapshot of shameless greed, our review of a NBER paper on pre-tax profits in tax haven and non-haven countries. graphs snapped from the paper.

According to standard explanations, the low and declining corporate tax rate around the world is the result of jurisdictional competition in a globalized world—offer a friendly tax environment or corporations will move. A new NBER working paper by Thomas R. Tørsløv, Ludvig S. Wier, and Gabriel Zucman (TWZ), says otherwise: multinational corporations (MNCs) are shifting an enormous share of their profits to low-tax havens without moving a single capital good. According to the authors, contrary to economic theory, “[i]nstead of increasing capital stocks in low-tax countries, boosting wages along the way, profit shifting merely reduces the taxes paid by multinationals, which mostly benefits their shareholders, who tend to be wealthy.”

A striking example of how this works: a couple of years ago, Google was booking close to $20 billion in revenues in Bermuda, a country it does almost no business in. That’s a striking example of how this sort of high-end tax avoidance works, but how big is it? TWZ attempt an estimate by scrutinizing the accounts of the havens. Their conclusion: close to 40% of MNC profits is shifted to tax havens. The biggest avoided jurisdictions are in the EU, and the biggest shifters are disproportionately based in the U.S.

One of the ways TWZ estimate the shifting of profits is by comparing corporate profits to wage bills by country. The average for non-haven countries is 36% (that is, pretax profits are 36% of the compensation of employees); for the U.S. it’s 31%. In Luxembourg, the figure is 258%; in Ireland, 242%; in Puerto Rico, 229%. Singapore and Hong Kong are around 100%. For some U.S. firms, profits are over 500% of the wage bill. None are this high because of massively high productivity; capital stocks are relatively low. Almost all the big profit numbers are from tax-shifting. Techniques include manipulating the pricing of intrafirm transfers (exporting to haven affiliates at low prices, and buying from them at high one); dummy loans from overseas affiliates, which produce big interest deductions in the home country; and locating valuable intellectual property offshore and paying high but economically meaningless royalties to the low-tax subsidiary.

The hits to revenue are large. TWZ estimate that tax shifting costs the EU 18% of its corporate tax revenue; the U.S., 14%; and developing countries, 7%. For the world as a whole, the loss is 10%.

All this movement of money plays havoc with macroeconomic statistics. For example, TWZ point out that the already-reported rise of the capital share of national income in the EU is probably understated. (They refer to estimates in a 2013 NBER paper by Loukas Karabarbounis and Brent Neiman, which found a steady decline in the labor share of national income in most parts of the world, with Japan and core EU countries (other than the UK) outdoing the U.S.) And reported current account deficits look worse than they should, because of all the accounting games. Adjusting for tax shifting, Japan, the US, France, and Greece would have had trade surpluses rather than deficits in 2015, and the U.S. deficit would have been reduced by a quarter.

Currently, most international tax disputes are between the high-tax countries; the low-tax ones get barely any attention. That doesn’t seem like a good use of resources.

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Little Wonder the BQE is about to Fall Over

For another striking measure of shortfalls in public and private investment, check out the graph below. These are real dollar amounts, not percentages of GDP. In real dollar terms, net fixed investment of all kinds is 20% below where in was in 2005. Net private nonresidential investment is just 12% above where it was in 2007. Net residential investment is 63% below where it was at the peak of the housing bubble, 2006. And net public investment is 39% below. Again, real dollars. These are paltry numbers considering that real GDP is up 36% since the pre-recession peak in 2007.

So net private investment is limp, and net public investment is struggling to keep one nostril above water. This has a lot to do why it feels like things are falling apart, and not just in rural America. An important section of the Brooklyn–Queens Expressway is about to fall down, and there are many other similar cases across the country. Visitors from China routinely express shock about the state of the infrastructure in a country that is still far richer than theirs. And crises like the coronavirus really bring home the effects of inadequate public and private investment. Tending to long-lasting things has gotten highly unfashionable, but that approach has some pitfalls.

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Startups Only Stable. We’re Waiting….

We keep looking for evidence that policy changes coming out of Washington—namely tax cuts and deregulation—are stimulating entrepreneurship and so far we’re coming up empty.

The latest evidence comes for the BLS’s Business Employment Dynamics (BED) series.

The BED series isn’t the timeliest around—we just got the data for the first quarter. But we shouldn’t get too hung up on novelty; these things have long-term effects.

Establishment births, expressed as a percentage of total establishments, were unchanged between 2017Q4 and 2018Q1, at 3.1%. (Establishment deaths, which are available with an additional three quarter lag—you want to make sure they’re really dead and not just unresponsive—rose between 2017Q1 and 2017Q2.) That 3.1% birth rate is below earlier peaks in 2005, 2012, and 2015 (each of which was lower than the previous).

Maybe things will pick up, but they haven’t yet.

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More data, more problems. Note on millennials

On Millennials: Our sense of the real story was captured by
a note from Stephanie Mackay. It’s a bit long,
but we didn’t want to take it apart.
(Full disclosure: we have close ties to the Columbus Center.)

I am currently the Chief Innovation Officer
for Columbus Community Center, a social
services agency that serves individuals with
intellectual disabilities [in their efforts to enter
and stay in the labor force]. I mention my
title because in the last fifteen years my job
has evolved from traditional fundraising to
reframing how those of us in the nonprofit
world can collaborate to tackle tough, pervasive
social issues in a more visionary and
impactful way. I do poke fun at millennials on
occasion (I get to because I have two of my
own), but frankly, I have seen a profound shift
in how they think about the world, money,
and social impact. I am actually inspired by
their sophisticated sense of connecting money
with fairness and inclusion.

To read full report, click here:

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