I was just revising a portion of my textbook, Economics:The Basics and I happened to come across this March 21, 2011 entry in the Federal Register where the Air Force is granting a waiver from the Buy American requirements of the American Recovery and Reinvestment Act of 2009. This is what the waiver said:
The domestic nonavailability determination for these products is based on extensive market research and thorough investigation of the domestic manufacturing landscape. This research identified that these products are manufactured almost exclusively in China.
Which products are they talking about?
… the following construction items to be incorporated into the project FTQW094001 for the construction and replacement of military family housing units at Eielson AFB, Alaska under task order FA8903-06-D-8505-0019. The items are 1″ Collated Screws, Shank #10; 1-1/2″ (Taco) Air Scoops for Hydronic Heating Systems; 1-5/8″ Ceramic Coated Bugle Head Course Thread Screws; 2″ (Taco) Air Scoops for Hydronic Heating Systems; 2-1/2″ (Taco) Air Scoops for Hydronic Heating Systems; 2-1/2″ Collated Screws; 3″ Ceramic Coated Bugle Head Course Thread Screws; 3″ Spool Insulators;3/4″ Collated Screws, Shank #10; 3″;Bolt Guy Clamp; Ceiling Fan; Ceiling Fan w/Light Kit; Door Hinge Pin Stops; Exterior Wall Mount Two Head Flood Light w/270 Degree Motion Sensor & Brushed Nickel Finish; Ground Fault Circuit Interrupt (GFCI) Receptacles; Handrail Brackets; Maclean Power Systems Guy Attachment; Residential Style Satin Chrome Handrail Bracket; Satin Nickel Outdoor Sconce Light Fixture; Tamper-Resistant Ground Fault Circuit Interrupt (GFCI) Receptacles; Weather-Resistant Ground Fault Circuit Interrupt (GFCI) Receptacles; Pendant Bar Light Fixture; 24″ Bath Vanity Light Fixture; Pendant Chandelier Light Fixture; Linear Fluorescent Ceiling Lighting Fixture (48″ Lensed Fluorescent w/Dimming Ballast & Satin Aluminum Finish); 48″ Bath Vanity Light Fixture; 20″ Utility Shelf Bracket; Chrome Finish Residential Dishwasher Air Gap Cap Fitting; Satin Chrome Finish Convex Wall Mount Door Stops; Residential Microwave w/Range Hood; Residential Style Polished Chrome Towel Ring; Residential Style Polished Chrome Toilet Paper Holder; Residential Style Polished Chrome Double Robe Hook; Residential Style Bright Stainless Steel 60″ Curved Shower Rod & Flanges; Residential Style Polished Chrome 24″ Towel Bar; Residential Style Polished Chrome 30″ Towel Bar; Satin Nickel Finish Wall Mounted Spring Door Stop.
Hmmm…it’s pretty amazing, don’t you think, that the Air Force is certifying that none of these items are available from American manufacturers. It’s even more extraordinary given that the BEA reports that the U.S. fabricated metal and electrical equipment industries were producing at very high levels as recently as 2007. Similarly, the BLS is reporting record levels of output in the ‘turned product, screw, nut and bolt’ industry as of 2007.
I see four possibilities.
First, the Air Force could be lazy. The parts are really available, but they can’t find them.
Second, U.S. manufacturers only make sophisticated parts, not towel bars and door stops.
Third, these industries were doing great through 2007, and have only gone offshore since the recession.
Fourth, the official data didn’t pick up the offshoring in the 2000s.
Self-styled conservative pundit Michelle Malkin just published a column on National Review Online that places politics over facts to slam an innovative public/private, faith-based/secular partnership that is effectively fighting domestic hunger across the United States.
She argues that it is wrong to use participants in the AmeriCorps national service program to help low-income families, children, and seniors obtain food stamps benefits, which she derides as “welfare.” Yet Malkin purposely omits key facts that would help the public understand that many components of both the AmeriCorps Program and the Supplemental Nutrition Assistance Program (SNAP) – the current name for what used to be called the Food Stamp Program – advance conservative principles.
Let’s start with the idea of national service, which engages Americans in domestic community service, usually through non-governmental nonprofit groups. Participants receive a small living stipend, but don’t receive a penny unless they work hard. If they successfully complete a full term of service, they receive an educational scholarship, but again, only if they do the work and do it well. It is no wonder then that, in the late 1980’s, when the Democratic Leadership Council and the Progressive Policy Institute (two organizations generally affiliated with the conservative/moderate wing of the Democratic Party and for whom I worked) proposed the idea that would become AmeriCorps, it was traditional liberals who were the staunchest opponents of the program, saying it was wrong to tie government benefits to work requirements.
In 1990, arch-conservative William F. Buckley, the founder of the National Review, wrote an entire book (Gratitude: Reflections on What We Owe to Our Country) promoting a government-funded system of national service, in which most of the money would be controlled by the states and participants would be provided a small living allowance. That’s exactly how AmeriCorps works today. Buckley went as far as to say that Americans who chose not to give back to their country by serving in such a program would be “contemptuous of their heritage and ungrateful.” He predicted that most conservatives would eventually embrace the idea because a “natural conservative sense of duty and of reverence for tradition will gradually win over most conservatives.”
It is ironic indeed that an idea championed by conservatives and derided by liberals is now lambasted as some sort of so-called example of liberalism run amuck.
In reality, most AmeriCorps funding decisions are made by states. Conservatives who are consistent about supporting federalism should embrace this program. All AmeriCorps benefits are made contingent upon work. Conservatives who are consistent in their claim that work should be the centerpiece of social policy should herald AmeriCorps as a best practice.
The most egregious misinformation in the Malkin piece is her implication that the national AmeriCorps benefits outreach program she is slamming is managed directly by the federal government and funded only by the federal government. It is not. In fact, it is run by the organization I manage, the New York City Coalition Against Hunger, a 501(c)3 nonprofit group, in conjunction with nonprofit groups and faith-based organizations around the country. (For the record, I am writing this response using non-governmental funds.) While most of the funding is federal, significant matching funds have been provided by the Walmart Foundation and the Trinity Church Wall Street in New York City. Conservatives who are consistent in their desire to buttress non-government entities should hold up AmeriCorps as a shining example.
Malkin derides religious organizations working with the government on SNAP outreach as “left wing,” but the reality is that our AmeriCorps outreach program is working with mainstream Protestant, Catholic, and Jewish groups. Our partners include the Presbyterian Hunger Program, Baylor University, and the Jewish Federation of Los Angeles. Conservatives who are consistent in their support for faith-based partnerships should run to the hilltops to praise this program.
Moreover, it’s absurd to claim that helping our hungry neighbors, including seniors and children, obtain food is somehow “left wing.” Given that mandates to do so are central commandments of the Old Testament, the New Testament, and the Qur’an, I would think that self-proclaimed religious people, such as Malkin, should promote, not deride, such efforts. After all, it was Jesus Christ himself (in Matthew 25) who said that helping the poor and hungry obtain food was just as holy as feeding the Lord.
I must also point out that, in some fundamental ways, the SNAP program is a conservative approach to fighting hunger. SNAP benefits are, first and foremost, wage supports, helping make low-income work a better way to support a family than receiving cash welfare. In fact, people who have left welfare are less likely to return if they receive SNAP. That is why many conservative governors have promoted SNAP access even as they continue to reduce their welfare rolls. Even President George W. Bush’s Administration made it clear that SNAP was a work support, not welfare. In fact, the Bush Administration’s USDA Under Secretary Eric Bost once said, “I assure you, food stamps is not welfare.” Yet because the term “welfare” sounds so much more nefarious than the accurate term “nutrition assistance,” Malkin uses it over and over again to inflame her audience.
SNAP is the ultimate voucher program, allowing families to use government funds to shop at private stores. Unlike truly liberal countries like India or Brazil where government food programs direct low-income families to government-run food warehouses, SNAP is now distributed entirely through the U.S. private enterprise system. Every government dollar spent by taxpayers on SNAP creates 1.8 dollars in private economic activity. Conservatives who are consistent in their support of vouchers should highlight the effectiveness of SNAP.
To be sure, AmeriCorps also bolsters the traditional liberal goals of increasing economic opportunity and expanding educational access. But there is no question that it also supports the traditional conservative goals of rewarding work and strengthening communities.
Likewise, outreach to increase SNAP usage advances the traditional liberal goal of reducing poverty. But there is no doubt that it also reinforces the traditional conservative goal of strengthening families.
If we want to live in a country that exists in a state of perpetual political warfare – in which we automatically denounce anything supported by our political opponents – then it makes sense for some people to reflexively oppose AmeriCorps and SNAP just because their opponents support them.
But if we want to live in country where Americans come together to solve major problems based on shared values – as the vast majority of Americans do – then we should all embrace efforts such as AmeriCorps. Our national service program, fighting hunger with a mix of federal and private funds, working with both secular and religious non-profit groups, represents the best of middle-of-the road American tradition. It deserves all Americans’ consistent support.
Entering the lists at last, President Obama delivered a stout defense of progressive values yesterday and checked the rightward drift of the deficit debate. For all its strengths, though, his speech also left open the question of whether he and his party are ready to grapple effectively with surging health and entitlement costs.
Obama started with a history lesson. As the Tea Party harks back to 19th century conceptions of limited government, he reminded Americans that the nation’s progress since then has been built upon a pragmatic synthesis of free enterprise and progressive governance. The extent of public activism required to create optimal conditions for shared prosperity is always a legitimate matter of debate, but the basic need for it shouldn’t be.
By insisting that deficit reduction leave room for strategic public investments in scientific research, modern infrastructure and education, Obama underscored a vital distinction that was being lost in the scramble to cut government spending: Reducing budget deficits is integral to reviving America’s economic dynamism. For most Americans, the priority is to get our economy moving again, not shrink government.
Obama also pushed back hard against Rep. Paul Ryan’s delusional budget, which asserts that the America’s path back to fiscal responsibility entails 100 percent spending cuts and 0 percent tax increases. In endorsing (finally!) his own fiscal commission’s plan, the president has set up a clear choice between the GOP’s fanatical devotion to shielding the rich from higher taxes and a bipartisan approach that exempts no one from sacrifice.
The president’s confident rejection of GOP tax dogma left House GOP Whip Eric Cantor sputtering. He was reduced to repeating the ridiculous Republican mantra that asking the wealthy to pay higher taxes is tantamount to killing America’s small businesses. Please Eric, bring it on: this is a debate progressives can win.
But Obama can’t just win debates. He needs to preside over passage of a comprehensive deficit-reduction package that, in a divided government, can only be achieved on a bipartisan basis. If he wants moderate Republicans to play on raising revenues – and a few intrepid souls like Sens. Tom Coburn and Saxby Chambliss have begun to do – he is going to have to convince Democrats to play on entitlement reform.
Here his speech fell short. Clearly mindful of President Clinton’s success in rallying the pubic behind his plans to protect Medicare and Medicaid during the 1995-96 budget battle, Obama categorically ruled out structural changes in how government finances those programs. That could prove to be a mistake.
It’s one thing for Democrats to reject the size of Ryan’s proposed cuts in the big public health care programs. But for both substantive and tactical reasons, they shouldn’t reject out of hand innovative devises to constrain entitlement costs.
It’s 2011, not 1996, and the baby boom retirement is underway, not over the horizon. This demographic surge, combined with health care costs that have been rising for decades faster than the economy has grown, are the real drivers of America’s debt crisis. To put a governor on the engine of federal health care spending, Ryan has proposed moving Medicare to a premium support model, and turning Medicaid into a federal block grant.
In his speech, Obama endorsed an alternative: strengthening provisions in his health reform bill to slow the unsustainable rate of health care cost growth. These provisions would encourage health providers to shift from fee-for-service to fixed fees for bundled services or capitated payments, which reward the value rather than volume of care delivered. These and other Obamacare provisions, including the independent commission set up to explore efficiencies in Medicare, are all good ideas. But even if they work, it will take a very long time for them to reach the scale necessary to break the back of medical inflation.
In the meantime, we need to protect public budgets from surging health care costs that threaten to soak up every dollar of revenue raised by 2040. If premium support and block grants are ruled out – even though some prominent liberals and Democrats have long supported one or the other — progressives need to come up with an alternative.
The political “grand bargain” Obama must strike couldn’t be clearer. It’s embedded in the fiscal commission plan: GOP support for raising revenues in return for Democratic support for constraining public health care and retirement costs. As the political action now shifts to the Senate, Obama needs to challenge his own party too.
I’m never going to win a Nobel Prize. Maybe in literature. I don’t know why Joseph Stiglitz’s new Vanity Fair piece on inequality is so off-base. But it is. And it’s incredibly frustrating (1) to see someone so intelligent be thwarted by ideology and (2) to watch as his views are propagated on the basis of his name recognition.
What’s a lonely uninvited-to-Davos blogger to do? Blog. Herewith, my fact check of the VF article. Stiglitz writes
The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.
Stiglitz doesn’t cite any of his figures (possibly a limitation of the outlet), but the Piketty & Saez estimate of the top one percent’s income share in the most recent year (2008) was 18 percent, which is just a hair closer to “nearly a quarter” than it is to “just over a tenth”. Their data says that share was 9 percent in 1985, but that should be adjusted upwards to 13 percent. Similarly, CBO says the top one percent’s share was 17 percent in 2007 for after-tax income, up from 11 percent in 1989. Saez’s estimate of the top one percent’s share of wealth is 21 percent for 2000, 21 percent for 1990, and 22 percent for 1985. Edward Wolff’s is 35 percent for 2007, up from 34 in 1983 (which I doubt is statistically different from 35 in this case). The top appears to have experienced income and wealth losses from 2007 to 2009 while the bottom experienced gains. Taken together, the top one percent’s income share rose from 11-13 percent twenty-five years ago to 17-18 percent according to the most recent data. The top one percent’s wealth share basically hasn’t risen.
MIT economist Erik Brynjolfsson’s comments led me to add this paragraph: Brynjolfsson raises an important point (though I wouldn’t call it a mistake) in noting that Stiglitz may have been referring to the Piketty and Saez numbers that include realized capital gains in “income”. I chose the series excluding capital gains because the timing of when capital gains are realized has everything to do with tax law, the strength of the economy, and when people retire. The P&S series including capital gains still doesn’t account for all the unrealized gains accruing to people (most importantly, those accruing to people in their retirement accounts). Capital gains realization is “lumpy” in a way that makes trends problematic.
But I will concede that the level of the top’s income share (including realized capital gains) is closer to 25 percent than the P&S numbers I cite above suggest. Now whether their share of income including unrealized capital gains is closer to 25 percent or 17 or 18 percent is an open question. And I still say the series excluding capital gains is the way to go for trend estimation. But look, all this aside, the CBO series includes realized capital gains (but also considers taxes and other things the P&S series leaves out). And it shows the same basic trend and level as my conclusion above.]
While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone.
The 18 percent figure looks to be from Piketty and Saez (the change from 1998 to 2008). The claim about median incomes falling is incorrect if one takes into account the value of employer- and government-provided health insurance. (Majorities of workers with employer coverage say they prefer more generous coverage to higher wages, so it turns out employers aren’t crazy in substituting ever-more-costly insurance for wages over time.) The decline in earnings (not income) for men with just a high school diploma is probably less than 12 percent. Based on some analyses I’ve been working on using the Current Population Survey, I find that men with a high school diploma but no four-year college degree saw a 12 percent decline in earnings over the roughly 33-year period from 1971-73 to 2003-2007, but that doesn’t take into account the caveats I mention in this post. And earnings among women with the same level of education rose by over 50 percent, so that’s inconvenient for Stiglitz.
The change in household or family income among men with just a high school diploma was, I’d wager, positive even before factoring in the caveats. And while I can’t cite the paper yet, research I’ve seen using the PSID rejects the conclusion that wives have been forced to work more due to stagnant husband earnings—the biggest increases in work were among wives with the best-educated husbands, and while the hours of married men declined, those of single men did not (suggesting that the decline among married men was a reaction to increased work among their wives). I’ll update this post when I can cite the paper (though that won’t be for a couple months anyway). But think about it–did all these women increase their college-going simply in anticipation of marrying men with stagnant earnings, or did they prefer the fulfilling professional options that a college degree afforded them? Or consider–is declining fertility, delayed marriage, and increased college-going among women in developed countries around the world all somehow related to rising American inequality? You can get the basic trend on work by sex by marital status from Table 1 of this paper while you anxiously await my update.
All the growth in recent decades—and more—has gone to those at the top.
Nope, not if “the top” refers to “the top 1 percent” cited two sentences earlier. According to the Piketty and Saez data, depending on whether one uses the share of nominal or real (inflation-adjusted) gains and whether one includes or excludes capital gains in “income”, the share of income growth going to the top one percent from 1998 to 2008 was between 22 and 33 percent. If you go back to 1988, the range is from 19 to 32 percent of gains since then. And keep in mind that when you start from an unequal distribution, if everyone experiences the same rate of income growth, a disproportionate share of gains will go to the top.
In terms of income inequality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran.
Compared to nearly all of the major nations of western and central Europe, the U.S. does have higher inequality (but it may not be that far off from the U.K. or Canada). The only numbers I could find for Russia and Iran are from the CIA World Factbook (the quality of which I can’t speak to). Out of 136 countries, the U.S. is ranked 40th worst. Iran is ranked 43rd and Russia 52nd. So that sounds bad, right? Meh. Hong Kong and Singapore rank worse than the U.S., and Indonesia, India, and Ethiopia rank much better than Russia. Stiglitz will have to do better than this if he wants to argue that American inequality is a big deal.
First, growing inequality is the flip side of something else; shrinking opportunity….Second, many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy.
OK, so now Stiglitz is trying to tell us why we should care about the inequality that he exaggerates. But these are just assertions. The best evidence suggests that opportunity for men to move from the bottom to the top over the course of a career hasn’t changed much over the past 35 to 40 years, and it has unambiguously increased for women (see Figures 15A and 15B). Across generations, the evidence is extremely thin, but it doesn’t point to an unambiguous increase or decrease in opportunity over the past few decades. As for inequality and efficiency, my dissertation advisor, Christopher Jencks, has found that there is little correlation between economic growth and inequality levels, which doesn’t exactly help those who believe inequality promotes growth but is equally problematic for Stiglitz and others who believe that inequality is inefficient.
When you look at the sheer volume of wealth controlled by the top 1 percent in this country, it’s tempting to see our growing inequality as a quintessentially American achievement…
Here Stiglitz is conflating income inequality (growing) with wealth inequality (basically flat and at a historic low in the U.S.). Whatevs.
America’s inequality distorts out society in every conceivable way. There is, for one thing, a well-documented lifestyle effect—people outside the top 1 percent increasingly live beyond their means.
So document it! The share of families with any debt rose from 72 percent in 1989 to 77 percent in 2007, though note that the share with assets also grew. Median net worth (assets minus debt) rose from $75,500 to $120,600. In the wake of the housing bust, it fell, but it was still around $92,000 in 2009. Among people with debt, median debt payments rose from 15.3 percent of family income in 1989 to 18.6 in 2007. These are pretty small changes in indebtedness, and I’m not sure how Stiglitz could empirically link them to inequality.
Inequality massively distorts our foreign policy.
Ummm…going for the Peace Prize next?
The chances of a poor citizen, or even a middle-class citizen, making it to the top in America are smaller than in many countries of Europe.
What little evidence there is suggests that upward mobility is lower in the U.S. only for men and only for those who start out poor. [UPDATE: Just to clarify, I’m talking about only men who start out poor, not men plus all people who start out poor. See the linked paper for details, but we’re talking about 12 to 13 percent of the population, roughly.]
All of this is having the predictable effect of creating alienation—voter turnout among those in their 20s in the last election stood at 21 percent, comparable to the unemployment rate.
Oh boy, the shift to political science by economist pundits is always fraught with danger. The 2010 election is a single data point (and an off-year election, when voting rates are much lower). I’ll just quote from a fact sheet from a Tufts research center that studies civic engagement among youth: “The 2008 election marked the third highest turnout rate among young people since the voting age was lowered to 18.” What any of this has to do with inequality is anybody’s guess.
In recent weeks we have watched people taking to the streets by the millions to protest political, economic, and social conditions in the oppressive societies that they inhabit….The ruling families elsewhere in the region look on nervously from their air-conditioned penthouses—will they be next?…As we gaze out at the popular fervor in the streets, one question to ask ourselves it this: When will it come to America?
Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy. Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years. Finally, imagine that industry charged falling prices for both consumers and businesses.
But of course, that industry is not imaginary: The telecom industry, and in particular the wireless sector, has outperformed the rest of the economy on key measures such as customer satisfaction, investment, and price. Moreover, at a time when President Obama is calling for more innovation, the wireless industry has produced more genuine new products and services than anyone else.
So given the great performance of the industry during this tough period, why the heck does the Federal Communications Commission keep imposing additional regulations on wireless providers? The latest case of regulatory overreach: On April 7, the FCC issued an order forcing the big wireless providers to sign ‘data-roaming’ agreements with smaller carriers. In effect, the smaller carriers can now tell their customers that they could have data service all over the U.S., free-riding on the mammoth investments by the big carriers. In addition, the FCC made it clear that it is willing to set the price for each data roaming agreement if it doesn’t like what the big carriers are offering–effectively reinstituting price regulation for the most dynamic sector of the economy.
This aggressive regulatory move by the FCC follow its enactment of confusing ‘net neutrality regulations’ in December 2010, an 87-page order that raises more questions than it resolves. And then coming down the road is the ‘bill shock’ regulation. In order to address the rather rare and fixable problem of a surprisingly high bill, this regulation would force providers to spend scarce investment dollars on revamping their billing system rather than building out their networks.
In many ways, enacting this series of regulations is like throwing pebbles in a stream. One pebble doesn’t make much of a difference, but throwing enough pebbles in the stream can dam it up.
Frankly, the degree of regulation that the FCC wants to impose is more appropriate to a failing industry rather than one which is demonstrably successful and growing. Let’s just run through the performance of the telecom/wireless industry over the past five years. According to the American Customer Satisfaction Index, satisfaction with wireless service has increased by 14% over the past five years, by far the biggest jump of any industry.
Now let’s look at investment. The data on investment is somewhat fuzzier than for satisfaction, since the government’s figures on industry investment only run through 2009, and merges the telecom and broadcasting industries.
But here’s what we see: In the telecom/broadcasting industry, real investment in equipment and software is up 30% since 2005, despite the turbulence of the financial crisis. By contrast, overall private sector real investment in equipment and software is down 8% over the same period.
And then of course the price of wireless service keeps falling. The latest figures from the Bureau of Labor Statistics say that consumer wireless prices are down 6% since 2011, and business wireless prices are down a lot more.
Right now the FCC has the good fortune to preside over one of the few growing industries in the economy. If the commissioners genuinely want to support innovation and growth, they should stop throwing regulatory pebbles into the stream.
Averting a government shutdown was only the first of a series of gates Congress must clear in this year’s downhill slalom of fiscal politics. Even sharper turns lie ahead – raising the debt ceiling, and approving next year’s federal budget.
In mid-May, the U.S. Treasury will bump up against the limit of its legal authority to borrow money to finance the federal government’s operations and service its debts. Republicans have served notice that they see the coming vote to raise the debt limit as another opportunity to extort deeper cuts in federal spending for next year.
The stakes in this game of fiscal chicken, however, are infinitely higher. Without a debt limit hike, the United States, for the first time in its history, would be forced to slash hundreds of billions in spending, or more likely, default on its obligations. Are GOP leaders really willing to let the Tea Party turn America into Argentina?
More likely they’re bluffing. Still, it wouldn’t be a bad thing if the debt ceiling vote becomes an action-forcing mechanism for serious negotiations to cut future deficits and stabilize the national debt. By “serious” I mean pragmatic and bipartisan, qualities you can only find nowadays by crossing the Capitol from the House to the Senate.
The House this week will probably pass some version of Budget Committee Chairman Paul Ryan’s proposed budget. It’s an ideological document, not a plausible point of departure for horse trading. By taking taxes off the table, Ryan panders to GOP taxophobia and ensures no Democratic support for his plan. And that plan is a distributional horror, concentrating all the pain of deficit reduction on middle- and lower-income Americans, while giving the most fortunate a free pass.
That’s why all eyes are on the “Gang of Six,” a bipartisan group of Senators who are trying to forge consensus around the Fiscal Commission’s deficit reduction plan. Its centerpiece is a call for a sweeping overhaul of tax expenditures, with the savings dedicated both to buying down individual and corporate tax rates and cutting federal deficits. PPI will co-host a public forum on tax reform tomorrow featuring Sens. Micheal Bennet (D-Colo.), Dan Coats (R-Ind.), and Ron Wyden (D-Ore.), as well as prominent budget and tax experts.
And President Obama, who seems to have gone on walkabout, returns to the fiscal fray Wednesday with a major speech on the need for cutting entitlement spending, especially for Medicare and Medicaid. The unsustainable growth of these huge “mandatory” programs – not the domestic spending targeted by House Republicans in the shutdown battle – is the real driver of federal spending and debt.
A decisive intervention at this stage by the President is crucial, since many Democrats are as deeply in denial about the need for entitlement reform as Republicans are when it comes to raising enough tax revenue to finance government. Many liberals, irate over the $38 billion in domestic spending cuts Democrats were forced to swallow to keep the government open, are demanding that Obama stop compromising and take up the ideological cudgels against Republicans. They want a full-throated defense of progressive government. But that requires action against entitlement spending, which is inexorably soaking up tax dollars and squeezing domestic programs that progressives rightly want to protect.
It also means showing the public that Democrats can responsibly manage the nation’s finances and restore fiscal discipline, even as they shield progressive priorities from chainsaw wielding Republicans. Obama’s challenge is to nudge, prod and cajole both sides toward a grand political bargain for shared sacrifice, built around tax and entitlement reform.
On the other hand, both Obama and Ryan have punted on the other big entitlement program, Social Security. It isn’t as big a problem as Medicare and Medicaid, but it must be on the table too because it’s adding to the nation’s overall debts. What’s more, it’s easily fixable. The Fiscal Commission pointed the way with sensible reforms, backed by Senate Democrats and Republicans, for raising the retirement age to match increases in longevity, and trimming future benefits for wealthy retirees.
The next step, however, should be tax reform. If the two parties can coalesce behind a plan similar to the Fiscal Commission’s, they could assure a balanced approach to deficit reduction, and build trust for the hard work of entitlement reform.
Recent reports of GE’s artful dodge of U.S. income tax liability are the perfect curtain raisers for the annual tax filing ritual. Yet another example of the injustice of our tax code! Time for a flat tax! No more loopholes for fat cats! Put aside GE’s tax lawyers’ interpretation of the tax code. What is more important than the furor over the story is that it represents yet another missed opportunity for a rational debate and another lost chance to design tax policies to spur innovation, global competitiveness, and growth.
When it comes to tax policy, the left usually lumps the rich and corporations together as villains who should pay up. They argue the tax code is not progressive enough and one way to make it so is to go after the plutocratic moneyed interests.
Inadvertently, the left makes a legitimate point lumping wealthy individuals and corporations together. But it is not because corporations and wealthy individuals are two distinct entities with common traits. Rather it is because a corporation is individual people – some rich, some poor. A corporation is a legal construct but it actually an amalgamation of employees and shareholders bonded by a desire to take in more than what is spent producing whatever it provides to the market. When corporations benefit from tax cuts, guess who benefits. It is not a data file sitting in some computer in Delaware but investors, employees, and consumers.
As for progressivity, the left also makes a fair point as we have seen income disparity widen in the last 30 years. But we aren’t going to close income gaps by going after corporations. Rather we need to abolish the tax cuts on individual dividend payments instituted almost a decade and raise the top marginal rates on individual income to mid-1990s levels. But don’t shake down corporations. In today’s globalized, highly-competitive market, we can ill afford to raise money from companies facing competitors whose countries are cutting, not raising, corporate taxes.
The U.S. now has one of the highest effective corporate tax rates of any OECD company. In other words, not only is the rate U.S. corporations pay (on average 39 percent) high, but the actual rate they pay after deductions and credit is also extremely high, notwithstanding some individual companies who may not pay much in any particular year. The high corporate tax rate is not making our companies stronger and inducing domestic investment. Quite the opposite.
Meanwhile, many of those on the right and in the center have an almost messianic devotion to the notion of broadening the tax base and lowering rates by getting rid of a host of deductions, credits, and exemptions. For them, simplicity is the golden rule. They want to tax every company and every activity the same way. But as philosopher Alfred North Whitehead stated, “seek simplicity but distrust it.”
There’s a simple reason not to treat everything companies do the same: the impacts on jobs and growth are not the same. That’s why, for example, virtually every academic study on the issue finds that giving companies a tax credit for research and development they do here in the United States is good effective policy. It’s the same for tax credits for investment in new capital equipment and software. There’s also a good reason not to treat all industries the same.
The simple fact is that industries like grocery stores, electric utilities and car dealers do not compete globally while industries like steel, pharmaceuticals, and electronics do. While the former provide needed services if we raise their taxes they are not going to build fewer grocery stores, electric wires, or car dealerships. But if we raise the taxes of steel companies, drug companies and electronics companies they will do the rational thing that any company would do: move production to the nations that tax them less. Currently, the former industries pay significantly higher effective tax rates than the last three. And that is exactly how it should be. This is why many state’s tax code favors manufacturing and high tech firms. It’s why most countries’ tax code does the same thing. They realize that jobs depend on the health of their companies that are in competition with firms outside their borders.
So, as you get ready to file your taxes, don’t grumble about GE. Turn your anger toward a polarized, irrational, and tired debate in Washington that is aimed at leveraging votes instead of creating the kind of innovative, productive, and globally competitive economic activity that American workers so desperately need.
It’s spring and the sap is rising in Washington – especially among Tea Party militants. They seem determined to shut down the federal government, even if it means making the United States look like a plus-size banana republic.
House Speaker John Boehner has been trying to talk sense to his vast freshman class, but they are in no mood for compromise. Although Democrats have agreed to reduce current spending by $33 billion, the GOP’s fiscal fundamentalists won’t budge from the $61 billion in cuts they have already passed on a party-line vote.
Nor will they back off from a slew of nakedly partisan policy riders calculated to be radioactive to Democrats. These poison pill measures, for example, would cut funding for Planned Parenthood, bar the Environmental Protection Agency from regulating carbon emissions, and block implementation of parts of President Obama’s health care law.
The government will run out of money if no agreement is reached by midnight Friday. The prospect of government agencies shutting down and hundreds of thousands of federal workers being furloughed doesn’t faze Tea Partiers. Having drunk deep of their own strange infusions, they apparently believe the public shares their contempt for the federal government. More experienced GOP hands know better.
“Let’s all be honest, if you shut the government down, it’ll end up costing more than you save because you interrupt contracts. There are a lot of problems with the idea of shutting the government. It is not the goal. The goal is to cut spending,” Boehner warned at a news conference last week.
The economic costs of a shutdown, of course, aren’t the real issue. Behind closed doors, Boehner no doubt is reminding his caucus of the fierce public backlash against Congressional Republicans who forced two shutdowns in the mid-1990s. These battles energized Democrats and set the stage for Bill Clinton’s political resurgence and reelection in 1996.
All this is ancient history to Tea Partiers, who believe they won a public mandate in 2010 for a drastic and immediate fiscal retrenchment. But a more dispassionate reading of the midterm results suggests that the voters’ foremost concern was the economy’s poor performance. Yes, they also want to reduce federal deficits, but timing is crucial. With unemployment falling at last, GOP demands for austerity now are likely to strike many Americans as premature. Plus, what the public wants is for their elected leaders to pull together and tackle the nation’s economic and fiscal problems, not bring government to a grinding halt.
What’s more, House Republicans are fighting on the wrong battleground, haggling over discretionary spending programs that comprise only 13 percent of the federal budget. Slowing and eventually reversing today’s rapid run-up of public debt will require a combination of tax reform and constraints on the automatic spending growth of “mandatory” programs, chiefly Social Security, Medicare and Medicaid.
House Budget Committee Chairman Paul Ryan will introduce tomorrow a comprehensive debt reduction package along these lines. The Ryan plan is really radical: it would voucherize Medicare and turn Medicaid into a block grant. But at least it will focus the House on the real drivers of our fiscal crisis and realistic fixes.
Meanwhile, over in the Senate, there’s been a striking, bipartisan convergence around the idea that the comprehensive blueprint developed by the President’s Fiscal Commission should be the starting point for fiscal reform. Remarkably, 64 Senators (half from each party) endorsed that approach, as has the bipartisan “Gang of Six” led by Senators Mark Warner and Saxby Chambliss.
This is the main arena for serious action to restore fiscal stability in Washington. The sooner we move beyond the distracting “squirmish’ in the House, the better.
A new story from the Associated Press argues that there’s been a big productivity surge in the U.S., post-financial crisis. Paul Wiseman writes: (my emphasis added)
The reason is U.S. workers have become so productive that it’s harder for anyone without a job to get one.
Companies are producing and profiting more than when the recession began, despite fewer workers. They’re hiring again, but not fast enough to replace most of the 7.5 million jobs lost since the recession began.
Measured in growth, the American economy has outperformed those of Britain, France, Germany, Italy and Japan — every Group of 7 developed nation except Canada,
According to the conventional wisdom, as summarized by Wiseman, the U.S. has sailed through the crisis in better shape than our industrialized rivals. The conventional wisdom also says to the degree that we have a jobs problem, it’s because we are so good at boosting output and productivity.
Of course, this directly contradicts my recent post, where I argued that the apparent productivity gain from 2007-2009 was to a large extent the result of mismeasurement.
But now let me make a different point. Wiseman argues that companies are producing more than when the recession began.
I don’t think he’s right for most of manufacturing.
I’m going to show a series of charts for various manufacturing industries. These charts show shipments, adjusted for prices changes–’real’ shipments. Real shipments are a good measure of what actually comes out of the factory.
These charts are scaled to January 2007 =100. They are also not seasonally adjusted. We’re going to look at them and ask ourselves the question–is the industry producing more than when the recession began? (I do my comparison from JanFeb 2007 to JanFeb2011, to reduce the impact of seasonal variation)
Let’s start with chemicals. Is the industry producing more than when the recession began? No, since real shipments are down almost 13% over the past four years.
Next up is the plastic and rubber products industry. Producing more than when the recession began? No. Real shipments are down 21% over the past four years, and it’s not even clear that we are seeing signs of recovery now.
Next: Nonmetallic mineral products, which includes glass, cement, tile etc. Producing more than when the recession began? No. Real shipments are down almost 30%. And from the chart, there’s little sign of recovery, which is not surprising given the importance of construction as a market.
Now we come to primary metals–steel, aluminum and etc. Producing more than when the recession started? Almost! Real shipments are down only 3.5% and there appears to be a sustained improvement underway.
Our next contestant is not quite so lucky. Machinery is one of the key strengths of the U.S. economy, including everything from construction equipment to turbines to mining machinery. Unfortunately, when we ask ourselves the question if the industry is producing more than when the recession started, the answer is: No. Real shipments are down 14% over the past four years. What’s more, the data suggest that the industry is still at early 2009 levels, which is not the right place to be.
Next is the computer and electronics industry. Is this industry producing more than before the recession? This is the one case where the answer is unequivocally yes. According to the methodology I am using, real shipments are up 8% over the past four years, with a steady recovery since the bottom of the recession. A couple of caveats here, both directions. There’s reason to believe that this number might be understated, because it doesn’t take into full account the increased power of communications equipment. On the other hand, this industry depends on foreign components, so it is very susceptible to the mismeasurement problem I described in my post last week. Let’s call it a yes for growth, and move on.
Our next industry is electrical equipment, which includes appliances. Is it producing more than when the recession began? Hell, no. Real shipments are down almost 17% over the past four years, and there’s no sign of a real recovery in the data.
Now we come to the ever-important transportation industry–motor vehicles, airplanes, and all that good stuff. Is the industry producing more than 4 years ago? No. According to my methodology, real shipments are down 24% over the past four years. Now, I don’t intend to go to the wall on this exact number. Everyone has their favorite way of doing this. The Fed’s industrial production number pegs motor vehicle IP as down 18.7% and aerospace and other transportation IP as up 2.7%. Still, no matter which way you slice it, real shipments are down for the industry as a whole.
Just two more to go, furniture and miscellaneous. Not surprising, furniture is still licking its wounds from the housing collapse, with real shipments 24% below the level of four years ago
Finally we come to the miscellaneous category, which is actually kind of interesting because it includes medical equipment, as well as toys, sporting goods, and office supplies. Wiseman’s main example, a maker of pharmaceutical equipment, is probably in this category. Is this industry producing more than it was before the recession? Oh, an ever so barebones 0.6% gain. Really, the graph looks pretty much flat.
A couple of final notes. First, these results are roughly compatible with the Fed’s industrial production indices (the Fed’s number for growth in the computer and electronics industry is larger, for the reason I noted above).
Second, I eagerly await the BEA’s real value-added stats for 2010 to see how it matches up (coming out April 26). And then we can contrast these two very different views of the health of manufacturing and the economy as a whole.
Over at his blog, PPI chief economic strategist Michael Mandel has a fascinating and mammoth post tackling the question: “How much of the productivity surge of 2007-2009 was real?” The answer: Just about nothing.
“I estimate that the actual productivity gains in 2007-2009 may have been very close to zero,” writes Mandel “In addition, the drop in real GDP in this period was probably significantly larger than the numbers showed.”
He also explores some of the implications for economic policy. Mandel also replies to his critics here.
Tyler Cowen, of whom I’m generally a big fan, summarizes an interesting post by Michael Mandel on recent productivity growth (the lack thereof). But he ends by trumpeting Hamilton Project analyses claiming to show that men’s earnings declined by 28 percent between 1969 and 2009. This claim, like the Mandel analyses, reinforces Cowen’s argument that we are in a Great Stagnation, but it’s not true! Stop this meme!
I’ve not had much time to blog recently, so I submitted a brief critique in the comments to the Leonhardt post that introduced the world to this unfortunate study (co-authored, unfortunately, by a fellow classmate of mine from Harvard’s inequality program) and in the comments to the Hamilton post. Here’s the basic problem: the analyses assign all nonworking men annual earnings of $0, and since labor force participation among men has declined, the result is a big drop in median earnings over time. But a lot of that decline in labor force participation is attributable to earlier retirement (they include men as old as 64), later and longer school enrollment (they include men as young as 25), rising “disability” rates (which do not correspond in any obvious way with changes in health or job demands but which do correspond with increasing generosity in disability benefits), and other factors having nothing to do with the strength of labor markets.
I re-crunched the numbers as follows. I included all men age 20 to 59 except for those who said they worked only part of the year or not at all because they were retired, going to school, in the Armed Forces, sick or disabled, or taking care of home and family. Using the inflation adjustment that the Hamilton guys likely used, I find a decline in median earnings of 9 percent, not 28.
Note, however, that comparing 1969 and 2009 holds up a likely peak year (when the business cycle was at a high) to a trough year (when it was at a low). Comparing 1969 to 2007 is apples-to-apples, and when I did that, the median was EXACTLY the same in both years (to the dollar, which is a pretty crazy coincidence). Finally, if I use the Bureau of Economic Analysis “personal consumption expenditures” deflator, which I think overstates inflation somewhat less than other commonly-used deflators, median earnings among men rose 7 percent from 1969 to 2007.
Seven percent is no great shakes, but this figure is also too small for assessing how men’s economic fortunes have changed over time. None of these analyses account for the fact that as a group, husbands reduced their hours over time in response to rising work and wages among wives. Nor do they account for the rising share of non-wage benefits in total compensation (health and retirement benefits have eaten into wages, presumably following the preferences of the median worker). Nor do they include the impact of taxes (which have declined) and tax credits (which have increased). In addition, even my figures may overstate inflation, thereby understating the earnings increase over time–inflation measurement is much more tricky when choices within categories of goods and services and retail outlets explodes and when so much of what we consume is (thanks to the inter-web . Finally, the analyses do not account for changes in the composition of the population. For instance, the fact that more men today are nonwhite and foreign-born pushes the 2009 median down, but it is likely that the typical white, nonwhite, native-born, and foreign-born men are all doing better than the trend in the overall median implies. Someday I’ll get to a full analysis.
Subject for discussion (and a future post): how are we as a nation supposed to clearly understand the state of the economy and our living standards when even moderate think tanks and researchers are so eager to hype negativity? As I’ve said before, policymakers aren’t the only people who–individually or collectively–can talk down the economy.
America’s embattled labor movement hasn’t had much to celebrate lately, so it’s worth noting when a major union welcomes a business mega-merger.
The Communications Workers of America strongly endorsed AT&T’s proposed $39 billion acquisition of T-Mobile. Deals this big – the merger would create the nation’s largest mobile-phone carrier, with about 39 percent of the market – have to run a bruising, multiple-agency regulatory gauntlet. Some consumer groups worry that it will reduce competition in the lucrative telecommunication sector, dampening incentives for innovation and possibly pushing up consumer prices.
No doubt the deal merits close scrutiny. But having one of America’s largest private unions (700,000 strong) in its corner can’t hurt AT&T’s chances.
C.W.A. represents 42,000 AT&T wireless workers and regards the company as reasonably friendly to unions. The merger gives it a better shot at organizing T-Mobile workers in the U.S. and in Germany (the company is owned by Deutsche Telekom, whose stock zoomed after the announcement.) For those workers, being absorbed into AT&T will mean “better employment security and a management record of full neutrality toward union membership and a bargaining voice,” said C.W.A. president Larry Cohen.
This rare bit of good news for organized labor follows successful efforts by Republican governors in several states to curtail public workers’ right to collective bargaining. Although polls show majorities of Americans are opposed to denying bargaining rights, high profile battles in Wisconsin, Indiana and New Jersey have drawn the public’s attention to the adverse impact on state budgets of generous compensation schemes for state employees, especially pension and health care benefits.
This is a huge problem for organized labor, which in recent decades has experienced growth only in the public sector. The picture is especially dismal in the private sector, where less than eight percent of workers are unionized.
If they are going to reverse their long pattern of decline, U.S. labor unions need to redefine their economic role and relevance to American workers in a post-industrial economy. Cohen’s statement pointed to a mission that would be good for both U.S. workers and employers: building modern infrastructure to underpin America’s ability to win in global markets. “For more than a decade, the United States has continued to drop behind nearly every other developed economy on broadband speed and build out,” he said.
In fact, a big national infrastructure push represents common ground on which big labor and big business can meet. In an “odd couple” pairing last week, AFL-CIO President Rich Trumka and Tom Donahue, head of the U.S. Chamber of Commerce, showed up to endorse a new proposal for a national infrastructure bank. Drafted by a bipartisan group of U.S. Senators including John Kerry, Mark Warner and Kay Baily Hutchinson, the bank would leverage billions of private investments in new transport, energy and water projects.
If labor and business can get behind an ambitious project for “internal national building,” our equally polarized political parties surely should be able to follow their example. And that bodes well for an American economic comeback.
In February 2001, nonfarm payrolls hit their business cycle peak of 132.5 million. Ten years later, the latest data pegs February 2011 payrolls at 130.5 million, a 1.5% decline. To put this in perspective, the ten-year period of the Great Depression, 1929-39 saw a 2.3% decline in nonfarm employment, roughly the same magnitude.
But even that 1.5% understates the extent of the pain for most of the workforce. I divide the economy into two parts. On the one side are the combined public and quasi-public sectors, and on the other side is the rest of the economy. Public, of course, refers to government employees. ‘Quasi-public’, a term I just invented, includes the nominal private-sector education, healthcare, and social assistance industries. I call them ’quasi-public’ because these industries depend very heavily on government funding. For example, social assistance includes ‘child and youth services’ and ‘services for the elderly and disabled’, which are often provided under government contract.
The chart below shows employment growth in the public/quasi-public sector, compared to employment growth in the rest of the economy, with February 2001 set to 100. We can see that public/quasi-public employment rose steadily over the past ten years, and is now up 16%. By comparison, the rest of the private sector is down 8% in jobs over the past 10 years.
Once again, we look at the Great Depression for an analogy. From 1929 to 1939, government employment rose by about 30%. If we back that out, then private sector non-ag jobs fell by 6% over the Depression decade. That compares to the contemporary 8% decline in private non-ag non-quasi-public jobs since 2001. So by this measure, the past 10 years have been worse for the labor market than the decade of the Great Depression.
Now let’s look by state. I put the chart beneath the fold, because it’s long and weird and I’m not sure if it going to come out right.
Here it is. This chart reports on the percentage change of private employment by state over the past ten years, leaving out the quasi-public sector.
The worst hit states, not surprisingly, are Michigan, Ohio, and Indiana. Massachusetts has a big decline as well, though I’m not sure that it’s fair to remove healthcare and education, which have always been primary drivers of the MA economy. Then we have some surprises, including CT and NJ. NY, At the other end, some of the natural resource states show job gains over the decade, as did DC, even after removing govt jobs.
In 2008, Democrats enjoyed a solid advantage in partisan identification. By 2010, that advantage had largely evaporated. As I detailed in a previous post, in every state, the Democratic partisan ID advantage has declined, and by an average of nine percentage points.
But the decline has not been equal across the nation. In fact, there is a good deal of variation in the change in Democratic identification across states, ranging from a ranging from a drop of 22.2 percent in New Hampshire (from +13.2% to -9.0%) to a drop of just 1.6 percent in Mississippi (see this table for state-by-state numbers).
Why should these changes vary so much from state to state? Are there demographics that might explain this?
As it turns out, the only statistically significant predictor of the decline in democratic partisan affiliation advantage is the percentage of white people in the state. Surprisingly, the state economy (at least as measured by unemployment rate or change in unemployment rate) doesn’t seem to matter.
Unemployment
Let’s begin with the unemployment rate, since a good deal of the analysis around the 2010 election was an “it’s the economy stupid” story: voters blamed Democrats for high unemployment, and voted Republican to express their anger and frustration.
Yet, what’s remarkable about this scatterplot (above) is that the story doesn’t hold up. If anything, the relationship seems to be slightly opposite what the conventional wisdom would lead us to expect: the Democrats appear to have lost more support in states that have relatively lower unemployment rates. However, it is not statistically significant.
Still, it’s possible that what matters is not the absolute unemployment rate, but rather the change. Yet, once again, the scatterplot (below) shows that this is not the case. The more unemployment dropped between November 2008 and November 2010, the less the average decline in Dems’ partisan ID advantage. Though the relationship is actually stronger than above, it is still not a statistically significant one.
These numbers just don’t fit with the story of voters turning against Democrats for a failing economy. Take Nevada: Unemployment jumped from 8.0 percent to 14.3 percent, yet Democrats partisan ID declined by only; Similarly, California: Unemployment goes up from 8.4 percent to 12.4 percent.
On the other side, consider New Hampshire: Unemployment goes up from 4.3 percent to 5.4 percent (both among the lowest in the nation), but Democrats lose 22.2 percentage points in partisan ID advantage; Or South Dakota: Enemployment up from just 3.4 percent to just 4.5 percent, but the Dem partisan ID advantage falls up 10.4 percent.
Manufacturing
Another possibility is that what matters is the economic make-up of the economy, and in particular, perhaps states that rely disproportionately on manufacturing are more likely to have a lot of anxious voters, since manufacturing is a dying industry. But if we plot the decline in Democratic partisan ID and the manufacturing as share of the state GDP, there is no relationship.
Seniors
Another possibility is that Democrats are losing out in states with more seniors, since senior citizens are reportedly turning against Democrats. A scatter-plot shows a clear relationship, though not quite a statistically significant one (but close!). Generally, the more seniors in a state, the more Democrats have lost in their partisan ID advantage. However, the number of seniors explains only three percent of the variation in the Democratic vote share decline.
Whites
Finally, we come to the share of white voters. Here we have a consistent pattern, and one that is statistically significant (and explains 13 percent of the state-level variation). For every ten percent increase in white voters as a share of the electorate, the predicted decline in Democratic ID advantage is almost one full percentage point (the one outlier in the lower left is Hawaii, which is highly Asian. Without that outlier, the relationship would be even stronger).
This re-emphasizes the problems that Democrats seem to be having with white voters. (Democrats have not enjoyed parity with Republicans among white voters in 20 years, but 2010 was especially bad, with white voters breaking 62-to-38 for Republicans in the mid-term elections.)
This explains why the Democratic decline in diverse states like California (47 percent white) and Nevada (66 percent white) is less than in lily-white states like South Dakota (90 percent white) and New Hampshire (95 percent white), even though California and Nevada have much higher levels of unemployment.
These results exist regardless of economic circumstances (these findings are robust even in a statistical model that controls for all the other possible factors discussed).
Conclusions
The brief summary of this analysis is that race may matter more than the economy for why voters have been identifying more and more as Republicans for the last two years.
Of course, there are obvious caveats to this interpretation, most significantly the fact that I am playing around with state-level data, as opposed to individual-level data.
But the patterns are discouraging for Obama and the Democrats. Much prognostication has argued that the number one factor for 2012 will be the unemployment rate, because historically, the unemployment rate has been a very strong predictor of whether the incumbent party wins or not. This analysis suggests that something else is going on as well. Democrats are having a hard time with seniors and particularly white voters, and it’s not just a story about the state of the economy. Democrats ignore these scatterplots at their peril.
What would it mean for theories of U.S. income inequality growth if the U.S experience has been similar to that everywhere else?
Yet again and again [economists and other researchers not named Hacker or Pierson] have found themselves at dead ends or have missed crucial evidence. After countless arrests and interrogations, the demise of broad-based prosperity remains a frustratingly open case, unresolved even as the list of victims grows longer.
All this, we are convinced, is because a crucial suspect has largely escaped careful scrutiny: American politics.
– Jacob Hacker and Paul Pierson, Winner Take All Politics
Here’s a chart showing trends in the share of income received by the top one percent for all the modern industrialized nations for which data is available going back to the early twentieth century:
The data is from a new website created by several of the leading scholars studying inequality with tax data. The American trend, the thick black line, is from the much cited work of Thomas Piketty and Emmanuel Saez, which is part of this new database.
From 1910 to 1970, American inequality trends follow the broad international pattern, and inequality levels are in the middle of the pack. That’s basically still true from 1970 to 1986:
It’s rising a bit over the period, but only by a percentage point. Note I’m keeping the scale of the charts the same for each one. Here’s the chart for 1988 to 2006:
Uh-oh. Now we look like our inequality levels are higher than everywhere else. What happened? 1986 to 1988 happened, as is evident from the 1970-2006 trend:
Wow, that’s a four percentage point increase in two years—three times the increase over the 16 years from 1970 to 1986, and bigger than the 12-year increase from 1988 to 2000. Huh. There are two possibilities here. One is that the data is right. You can see where I’m going here.
It helps to know that the 1986 tax reform created big incentives for people who had previously reported income on corporate returns (where it is invisible to the datasets above) to report on individual income tax returns (where it appears as an out-of-the-blue increase). And if this may be considered a permanent change in the tax regime, then the effect is for more income to show up on individual returns after 1986 than before, artificially lifting the top income share in every subsequent year.
Hmmm…which possibility is more likely? Let’s look at another chart showing the trends just for the northern hemisphere Anglophone countries, to which I’ll add a new line:
OK, from about 1940 to 1986, these trends line up strikingly, then the U.S. trend goes AWOL. However, let’s instead assume the post-1986 U.S. trend is an artifact of the 1986 tax reform. First, let’s increase the top one percent share from 1986 to 1988 by the same rate that it increased in the U.K. Then let’s let the top share in the U.S. increase by the same rate that it actually did from 1988 to 2006, but from the new, lower 1988 level. The result is the revised line above. This makes the U.S. trend and level consistent with not just the U.K., but Canada.
Of course, if the 1988 to 2006 top share levels are more accurate in the U.S. after 1988 than before 1986, then rather than lowering the post-1986 trend, we should raise the pre-1988 trend. That would make U.S. levels uniformly higher than in the U.K. and Canada. But of course, the measured U.K. and Canadian top share levels may also be artificially low due to tax avoidance. And of course, the common trend over the three countries would remain.
So, to review, when the post-1986 U.S. trend is corrected, the U.S. experience with inequality over the past 100 years is broadly consistent with the rest of the modern world. Here’s the summary chart for 1910-2006, with the revised U.S. trend.
Comparing levels is more difficult, but many recent cross-national comparisons related to inequality are about why trends differ. What these five charts clarify is that explanations for the recent rise in American inequality that focus on uniquely American causes—such as greater political muscle-flexing among corporations and the mega-rich—are insufficient (and unnecessary).
Update: I’ve received several responses offline that it’s going to far to say the experience of the U.S. is like that “everywhere else” and that it is really only like the other Anglophone countries. To some extent, that’s a fair criticism. But of 15 countries shown here, only Germany, the Netherlands, and Switzerland haven’t experienced an increase in inequality since 1980. And the increases in Norway and Finland are as big or bigger than in the U.S., U.K., and Canada. Sweden’s increase is also nearly as great in relative terms (starting from a much lower level of course). But even if this is a story about the U.S., U.K., and Canada or the Anglophone countries versus the rest of the world, that’s still a problem for Hacker’s and Pierson’s U.S.-centric theory.
The U.S. housing market continues to stumble. The median home price is now at its lowest level since April 2002 and the percentage of Americans who believe that homeownership is a safe investment continues to decline. Meanwhile, policy is largely at a standstill. Treasury Secretary Tim Geithner continues to urge a go-slow approach on the phase-out of government supported mortgages through Fannie Mae and Freddie Mac. And all House Republicans can come up with is trying to kill the Obama Administration’s efforts to stem foreclosures through the Home Affordable Mortgage Program (HAMP) and other related programs.
Economist Robert I. Lerman has proposed a cost-effective way to reinvigorate the stalled housing market: The federal government should provide a million vouchers that allow low-income renters to become homeowners and allow some of the two million holders of rental vouchers to convert them into homeownership vouchers.
The basic idea is that these vouchers would create a new pool of potential owners to buy up depressed housing stock. Since the federal government already provides rental vouchers, it may as well turn those rental vouchers into ownership vouchers. And actually, doing so would save the government money, since in almost all housing markets mortgage payments would be lower than the market rent.
The plan has other benefits as well. As Lerman writes:
A rise in home prices would reduce the number of homeowners who find their homes worth far less than their mortgages. It would discourage these “underwater” homeowners from walking away from their mortgages; allow more families to refinance at low interest rates, thereby reducing the rate of foreclosures; and, ultimately, it would generate new construction jobs and spur associated job growth. Increased home values also can play an indirect role in job creation, since more small business owners would again be able to use their home as collateral for loans to maintain and expand their business.
In short, “Homeownership Vouchers” is a smart way to stimulate the housing market, expand the dream of homeownership to low-income families, and give the economy some added juice, all while potentially saving the government money.
I was just revising a portion of my textbook, Economics:The Basics and I happened to come across this March 21, 2011 entry in the Federal Register where the Air Force is granting a waiver from the Buy American requirements of the American Recovery and Reinvestment Act of 2009. This is what the waiver said:
Self-styled conservative pundit Michelle Malkin just 
Entering the lists at last, President Obama delivered a stout defense of progressive values yesterday and checked the rightward drift of the deficit debate. For all its strengths, though, his speech also left open the question of whether he and his party are ready to grapple effectively with surging health and entitlement costs.
I’m never going to win a Nobel Prize. Maybe in literature. I don’t know why Joseph Stiglitz’s new 
Imagine that you had an industry where customer satisfaction was increasing faster than any other part of the economy. Now imagine that the same industry showed rising real investment, even during the worst recession in 75 years. Finally, imagine that industry charged falling prices for both consumers and businesses.
Averting a government shutdown was only the first of a series of gates Congress must clear in this year’s downhill slalom of fiscal politics. Even sharper turns lie ahead – raising the debt ceiling, and approving next year’s federal budget.
Recent reports of GE’s artful dodge of U.S. income tax liability are the perfect curtain raisers for the annual tax filing ritual. Yet another example of the injustice of our tax code! Time for a flat tax! No more loopholes for fat cats! Put aside GE’s tax lawyers’ interpretation of the tax code. What is more important than the furor over the story is that it represents yet another missed opportunity for a rational debate and another lost chance to design tax policies to spur innovation, global competitiveness, and growth.
It’s spring and the sap is rising in Washington – especially among Tea Party militants. They seem determined to shut down the federal government, even if it means making the United States look like a plus-size banana republic.
Tyler Cowen, of whom I’m generally a big fan, 
America’s embattled labor movement hasn’t had much to celebrate lately, so it’s worth noting when a major union welcomes a business mega-merger.
