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| Overcharged: The High Cost of Finance |
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 After decades of deregulation, the current U.S. financial system has evolved into a highly speculative system that has failed rather spectacularly. Big Finance’s destructive practices and the overcharging of customers will have cost the U.S. economy between $12.9 and $22.7 trillion by 2023. In a new report by the Roosevelt Institute, co-authors Gerald Epstein and Juan Antonio Montecino estimate these costs by analyzing three components: 1) rents, or excess profits; 2) misallocation costs; and 3) the costs of the 2008 financial crisis. The authors describe mechanisms finance uses to pocket these rents and suggest policies to reduce these high costs and to reform the financial sector to play a more productive role in society.
“Enter economist Gerald Epstein of the University of Massachusetts, Amherst. He has dived in and crunched the numbers, and the results are eye-popping. Epstein and his colleague Juan Antonio Montecino look at exactly how families, taxpayers and businesses get ripped off by dubious financial activities and tally up the costs in a new paper for the Roosevelt Institute, "Overcharged: The High Cost of Finance." --Institute for New Economic Thinking
Read "Overcharged: The High Cost of High Finance"
Press coverage
Institute for New Economic Thinking
Huffington Post
Naked Capitalism
The Real News Network
Truth-Out
Money Radio Interview |
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| Transforming Economic Thinking to Achieve Social Justice |
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 Economic policy has not adequately addressed the pressing challenges we face today: extreme poverty, widespread joblessness and precarious employment, increased inequality, and large-scale environmental threats. A new book, Rethinking Economic Policy for Social Justice, by PERI Associate Director James Heintz and co-authors Radhika Balakrishnan and Diane Elson, shows how human rights have the potential to transform economic thinking and policy-making with significant consequences for social justice. The authors make a case for a new normative and analytic framework, based on a broader range of objectives than such standard narrow goals as GDP growth.
The book covers a range of issues including inequality, fiscal and monetary policy, international development assistance, financial markets, globalization, and economic instability. This new approach allows for a complex interaction among individual rights, collective rights and collective action, as well as encompassing a legal framework that offers formal mechanisms through which unjust policy can be protested.
“The book provides an urgently needed ethical antidote to neoliberalism, one that develops a fresh and radically powerful rights-based approach that places ethics, social justice, and the right to a good and just life at the heart of economic policy design and evaluation.’ ― Professor Ilene Grabel, Josef Korbel School of International Studies, University of Denver
>> Read more about Rethinking Economic Policy for Social Justice by Radhika Balakrishnan, James Heintz, and Diane Elson
>> Purchase the book |
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| What Is the Trade-Off Between Jobs and Environmental Quality for Minority Groups? |
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 A new paper by James Boyce and Michael Ash analyzes the relationship (and possible trade-off) between jobs and toxic environmental exposure in order to help develop a framework for developing regulatory policy. The authors explore the relationship between the racial/ethnic profile of employment and racial or ethnic disparity in toxics exposure. They do this by examining the race and ethnicities of populations surrounding and affected by polluting industrial facilities compared to the profile of facility workforces.
The authors use matched facility-level data from the US EPA Toxics Release Inventory (TRI) and the US Equal Employment Opportunity Commission EEO-1 database to establish their findings: They find that the share of pollution risk to ethnic or racial minority groups typically exceeds their share of employment and substantially exceeds their share of good jobs.
>> Read “Assessing the Jobs-Environment Relationship with Matched Data from the US EEOC and US EPA. |
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| Providing a Just Transition for U.S. Fossil Fuel Industry Workers |
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 The world must dramatically cut its dependence on fossil fuels over the next 20 years to stabilize the global climate. Clean energy investments will expand overall job opportunities. Yet workers and communities whose livelihoods depend on the fossil fuel industry will unavoidably lose out in the clean energy transition. In an article for The American Prospect, Robert Pollin and Brian Callaci develop a Just Transition framework for workers and communities now dependent on the fossil fuel industry. Their proposal focuses on income and pension-fund support for workers as well as transition assistance for what are now fossil-fuel dependent communities. They estimate the overall cost of the program at a relatively modest $500 million per year. They detail how this funding will pay for income, retraining, and relocations support for workers as well as transition programs for fossil fuel-dependent communities.
A new paper by James Boyce and Michael Ash analyzes the relationship (and possible trade-off) between jobs and toxic environmental exposure in order to help develop a framework for developing regulatory policy. The authors explore the relationship between the racial/ethnic profile of employment and racial or ethnic disparity in toxics exposure. They do this by examining the race and ethnicities of populations surrounding and affected by polluting industrial facilities compared to the profile of facility workforces.
>>Read "A Just Transition for U.S. Fossil Fuel Industry Workers"
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| The Revenue Potential of Fianancial Transaction Tax |
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T his paper by Robert Pollin, James Heintz, and Thomas Herndon estimates the revenue potential of a financial transaction tax (FTT) for U.S. financial markets. It analyzes the revenue potential of the Inclusive Prosperity Act that was first introduced into Congress in 2012. The authors conclude conservatively that the net revenue potential of this U.S. FTT as being around $300 billion per year, which equals approximately 1.7 percent of current U.S. GDP. The authors derived this number by examining three sets of evidence to generate potential revenue estimates: 1) the levels of transaction costs in U.S. financial markets over time and within the range of financial market segments; 2) the extent of trading elasticities under various trading conditions; and 3) the current level of trading activity in U.S. financial markets.
They conclude that the U.S. FTT, which should bring a fall in stock market trading relative to productive investment spending, should not produce significant negative effects on productive investment spending by U.S. nonfinancial corporations.
>> Read “The Revenue Potential of a Financial Transaction Tax for U.S. Financial Markets”
Read coverage of the study in Huffington Post’s- New Study: Sanders’ Tax Wall Street Plan Would Raise $300 Billion, Create Millions of New Jobs.- by Rose Ann DeMoro
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Additional Recent Research
Published Study by the Center for Global Policy Solutions : Peter Arno and Jeannette Wicks-Lim
Overlooked But Not Forgotten: Social Security
This study expands existing research about Social Security by demonstrating its impact on mitigating child poverty. It examines its effect on children living in extended households that receive benefits, a trend that has been growing for more than a decade, with results stratified by race/ethnicity. The study demonstrates that 6.4 million children, twice as large as the number of direct child beneficiaries, benefit from Social Security.
PERI Working Paper: Thomas R Michl
Profit-Led Growth and the Stock Market
What is the significance of the fact that wages are both the largest component of costs and the major source of demand for consumption goods? This paper puts forward one answer by writing out a simple model of corporate capitalism with a financial market for firm equities issued by managers as part of their investment plan, workers who save for life-cycle motives, and capitalist rentier households who save from a bequest motive.
PERI Working Paper: Ilene Grabel
Capital Controls in a Time of Crisis
Prior to the financial crisis of 2008, capital controls – measures taken to limit the flow of foreign capital in and out of a domestic economy – were largely discredited by neoclassical economists as wrong-headed economic meddling. But Ilene Grabel writes that the crisis brought about a “rebranding” of capital controls, which are now seen as legitimate and necessary by a broader set of economists. The paper highlights factors contributing to this evolving perception of capital controls among academics and policymakers, and the tensions around this rebranding.
PERI Working Paper: Simon Sturn
Do Minimum Wages Lead to Job Losses? Evidence from OECD Countries on Low-Skilled and Youth Employment
This paper investigates the impact of minimum wages on low-skilled and female low-skilled employment, and reassesses their effect on youth employment. The sample consists of 19 OECD countries from 1997-2013 for low-skilled, and 1983-2013 for young workers. The findings consistently suggest that there is little evidence for substantial disemployment effects on low-skilled, female low-skilled, and young workers.
PERI Research Brief: Jeannette Wicks-Lim
A $15.00 Federal Minimum: Who Would Benefit?
Former Democratic presidential candidate Senator Bernie Sanders is calling for raising the federal minimum wage from $7.25 to $15.00 per hour. This paper shows that a $15.00 minimum wage could deliver raises to approximately 65 million workers—more than two-fifths of the U.S. workforce. The research shows that large percentages of workers from every major demographic group would receive raises from this wage hike. At the same time, because working women, African-Americans, Latinos, and workers from low-income households disproportionately earn near or below $15 an hour, these groups would benefit the most from a $15 minimum wage.
PERI Working Paper: Daniel MacDonald and Eric Nilsson
The Effects of Increasing the Minimum Wage on Prices: Analyzing the Incidence of Policy Design and Context
The authors analyze the price pass-through effect of the minimum wage and use the results to provide insight into the competitive structure of low-wage labor markets. Using monthly price series, they find that the pass-through effect is entirely concentrated on the month that the minimum wage change goes into effect, and is much smaller than what the canonical literature has found.
PERI Research Brief: James K. Boyce
Distributional Issues in Climate Policy: Air Quality Co-benefits and Carbon Rent
The case for climate policy typically is made on grounds of inter-generational equity, with a presumed tradeoff between the environmental interests of future generations and the economic interests of the present generation. This framing of the problem neglects the scope for designing policies that not only mitigate climate change but also yield net benefits for all or most people who are alive today. This paper considers two avenues by which climate policy can bring substantial immediate gains to the present generation, via (i) air quality co-benefits from reduced use of fossil fuels; and (ii) recycling of rent created by carbon pricing.
Global Environmental Change: James K. Boyce, Bofeng Cai, Xin Bo, Lixiao Zhang, Yanshen Zhang, Yu Lei
Gearing Carbon Trading Towards Environmental Co-Benefits in China
Dramatically reducing consumption of oil, coal, and natural gas as energy sources is necessary for climate stabilization. Reducing fossil-fuel consumption will also be a major factor in protecting the present generation from the health effects of dirty air. PERI's James K. Boyce joins Chinese researchers in the latest issue of Global Environmental Change to analyze how air quality co-benefits could be incorporated into the design of the cap-and-trade system being introduced in Beijing and nearby regions.
PERI Working Paper: Leonce Ndikumana and Mare Sarr
Capital Flight and Foreign Direct Investment in Africa
This paper explores the puzzling simultaneous rise in foreign direct investment (FDI) inflows and capital flight in Africa over recent decades. It examines two questions: Is FDI a potential driver of capital flight? And, is natural resource endowment a possible channel for the capital flight-FDI link? Three important findings emerge. First, while there is no robust evidence that capital flight is fueled by annual FDI inflows, there is a positive relationship between the stock of FDI and capital flight. Second, natural resource endowment is directly related positively to capital flight, especially in the case of oil. Third, high-quality institutions significantly weaken the link between FDI and capital flight.
PERI Working Paper: Rafael Fernandez and Clara Garcia
Wheels within Wheels within Wheels: The Importance of Capital Inflows in the Origin of the Spanish Financial Crisis
With the creation of the Euro, the Spanish economy established an exchange rate regime similar to that adopted by many emerging economies during the 1990s. At the same time, the Eurozone as a whole adopted a currency system with features similar to the U.S. currency regime. The adoption of these models was accompanied by strong growth in capital inflows, as well as severe financial and/or macroeconomic imbalances. Several authors have linked capital inflows with imbalances as cause and effect. This work proposes a causal link between post-Euro exchange rate regimes adopted in Spain, capital inflows, and the imbalances that preceded the financial crisis of 2008.
PERI Working Paper: Thomas I. Palley
Inequality and Growth in Neo-Kaleckian and Cambridge Growth Theory
This paper examines the relationship between inequality and growth in the neo-Kaleckian and Cambridge growth models. It explores the channels whereby functional and personal income distribution impact growth. Contrary to widespread claims, inequality per se does not impact growth. Instead, both growth and inequality are impacted by changes in the underlying forms and pattern of income payments. However, inequality is critical at the microeconomic level as it explains differences in household propensities to consume which are at the foundation of neo-Kaleckian and Cambridge growth theory.
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