Tag Archives: inequality

anti-monopoly politics

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This Intercept article talks about an anti-monopoly message some Democrats are trying out. I like the idea in principle. Productivity growth has been stuck in second gear for close to 50 years now, and yet we hear about record corporate profits and stock market returns. These things happen at the same time only if big business is able to make unfair profits by rigging the system unfairly in its favor. That way their profits can grow while wages and innovation both stagnate. This is not a recipe for long-term growth for the economy as a whole.

Big business has been able to hijack the “free market” message for a long time now. Of course, a truly free market is about a truly level playing field for businesses of all sizes, and one where innovators can compete with established big businesses. I would argue that it is also about an economy where entrepreneurs and small business owners can take chances and innovate against a backdrop of health care, childcare and retirement security. But maybe that should not be the focus – one appeal of an anti-monopoly message could be to give the devisive social issues a rest for awhile and focus on inclusive economic growth.

The author gives several examples of monopoly power hurting both rural and urban interests:

FRERICK TALKS ABOUT running a Teddy Roosevelt-style campaign. In rural towns in southwest Iowa, he has challenged the merger between Monsanto and Bayer, which would give two companies (the other is Dow/DuPont) control of 75 percent of the U.S. corn seed supply. Add the company created by the merger of ChemChina and Syngenta, and three companies would sell 80 percent of all seeds. Farmers have no ability to bargain for corn seed, which has doubled in price over the last decade, even while crop prices have dropped…

But Frerick has a broader case to make on monopolies. In urban areas of Des Moines with less connection to farm life, he’s talked about cable companies who take hours to answer customer service calls, or shrinking local newspapers due to Facebook and Google’s capturing of prized eyeballs for advertisers. In older communities, he’s condemned pharmaceutical companies that funnel patients to expensive drugs with little or no competition. A separate 2016 paper Frerick wrote while at Treasury explained how drug companies use corporate charity as a profit center, by paying discounts for individuals so insurers and government plans have to pay exorbitant rates for medications…

Most hospitals buy supplies in bulk through group purchasing organizations (GPOs) which carry a “90/10” requirement. Hospitals must continue to purchase at least 90 percent of their supplies from inside the GPO to qualify for discounts and avoid millions of dollars in penalties. This contractual obligation fortified BD’s monopoly, despite selling a more dangerous, more expensive product.

inequality and carbon emissions

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A paper in Ecological Economics explores the links between inequality and carbon emissions.

The Trade-off Between Income Inequality and Carbon Dioxide Emissions

We investigate the theoretically ambiguous link between income inequality and per capita carbon dioxide emissions using a panel data set that is substantially larger (in both regional and temporal coverage) than those used in the existing literature. Using an arguably superior group fixed effects estimator, we find that the relationship between income inequality and per capita emissions depends on the level of income. We show that for low and middle-income economies, higher income inequality is associated with lower carbon emissions while in upper middle-income and high-income economies, higher income inequality increases per capita emissions. The result is robust to the inclusion of plausible transmission variables.

It could be that as developing countries develop, greener technologies become available to the working and middle classes faster than their household incomes actually increase. I am thinking of a switch from biomass and coal to electricity and natural gas, for example. These will lower people’s ecological footprint without necessarily costing them a lot more money. Once they start to get more money, they may start to transition to higher-impact behaviors, like driving instead of bicycling, and eating more meat and less grain.

You certainly wouldn’t want to promote income inequality as a policy measure to help the environment. There are social and tax policies that could be pursued instead, for example keeping communities walkable and mixed use even as incomes rise, and pricing meat at its true cost to the environment. These aren’t easy things to do politically in developing countries or anywhere else, of course, because they would require a political system willing to take on corporate power such as the oil, automobile, highway, and agriculture industries which tend to be immensely powerful and intertwined with political, bureaucratic and military elites.

Naomi Klein

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In The Intercept, Naomi Klein warns that the Trump administration could be waiting for a crisis to advance the worst of its agenda, including extreme income redistribution (from the poor to corporations and the rich, of course).

Large-scale shocks are frequently harnessed to ram through despised pro-corporate and anti-democratic policies that would never have been feasible in normal times. It’s a phenomenon I have previously called the “Shock Doctrine,” and we have seen it happen again and again over the decades, from Chile in the aftermath of Augusto Pinochet’s coup to New Orleans after Hurricane Katrina.

And we have seen it happen recently, well before Trump, in U.S. cities including Detroit and Flint, where looming municipal bankruptcy became the pretext for dissolving local democracy and appointing “emergency managers” who waged war on public services and public education. It is unfolding right now in Puerto Rico, where the ongoing debt crisis has been used to install the unaccountable “Financial Oversight and Management Board,” an enforcement mechanism for harsh austerity measures, including cuts to pensions and waves of school closures. This tactic is being deployed in Brazil, where the highly questionable impeachment of President Dilma Rousseff in 2016 was followed by the installation of an unelected, zealously pro-business regime that has frozen public spending for the next 20 years, imposed punishing austerity, and begun selling off airports, power stations, and other public assets in a frenzy of privatization.

As Milton Friedman wrote long ago, “Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.” Survivalists stockpile canned goods and water in preparation for major disasters; these guys stockpile spectacularly anti-democratic ideas.

Her list of potential shocks includes terror shock, war shock, economic shocks, and weather shocks. I would put any amount of money on at least one of these happening in the next four years.

Naomi Klein has a new book coming out called No Is Not Enough: Resisting Trump’s Shock Politics and Winning the World We Need.

minimum wage and unemployment

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In this Atlantic article, James Kwak summarizes several theories on why a higher minimum wage doesn’t seem to increase unemployment in the real world as the simple supply-and-demand theory would predict.

The idea that a higher minimum wage might not increase unemployment runs directly counter to the lessons of Economics 101. According to the textbook, if labor becomes more expensive, companies buy less of it. But there are several reasons why the real world does not behave so predictably. Although the standard model predicts that employers will replace workers with machines if wages increase, additional labor-saving technologies are not available to every company at a reasonable cost. Small employers in particular have limited flexibility; at their scale, they may not be able to maintain their operations with fewer workers. (Imagine a local copy shop: No matter how fast the copy machine is, there still needs to be one person to deal with customers.) Therefore, some companies can’t lay off employees if the minimum wage is increased. At the other extreme, very large employers may have enough market power that the usual supply-and-demand model doesn’t apply to them. They can reduce the wage level by hiring fewer workers (only those willing to work for low pay), just as a monopolist can boost prices by cutting production (think of an oil cartel, for example). A minimum wage forces them to pay more, which eliminates the incentive to minimize their workforce.In the above examples, a higher minimum wage will raise labor costs. But many companies can recoup cost increases in the form of higher prices; because most of their customers are not poor, the net effect is to transfer money from higher-income to lower-income families. In addition, companies that pay more often benefit from higher employee productivity, offsetting the growth in labor costs. Justin Wolfers and Jan Zilinsky identified several reasons why higher wages boost productivity: They motivate people to work harder, they attract higher-skilled workers, and they reduce employee turnover, lowering hiring and training costs, among other things. If fewer people quit their jobs, that also reduces the number of people who are out of work at any one time because they’re looking for something better. A higher minimum wage motivates more people to enter the labor force, raising both employment and output. Finally, higher pay increases workers’ buying power. Because poor people spend a relatively large proportion of their income, a higher minimum wage can boost overall economic activity and stimulate economic growth, creating more jobs. All of these factors vastly complicate the two-dimensional diagram taught in Economics 101 and help explain why a higher minimum wage does not necessarily throw people out of work. The supply-and-demand diagram is a good conceptual starting point for thinking about the minimum wage. But on its own, it has limited predictive value in the much more complex real world.

Even if a higher minimum wage does cause some people to lose their jobs, that cost has to be balanced against the benefit of greater earnings for other low-income workers. A study by the Congressional Budget Office (CBO) estimated that a $10.10 minimum would reduce employment by 500,000 jobs but would increase incomes for most poor families, moving 900,000 people above the poverty line. Similarly, a recent paper by the economist Arindrajit Dube finds that a 10 percent raise in the minimum wage should reduce the number of families living in poverty by around 2 percent to 3 percent. The economists polled in the 2013 Chicago Booth study thought that increasing the minimum wage would be a good idea because its potential impact on employment would be outweighed by the benefits to people who were still able to find jobs. Raising the minimum wage would also reduce inequality by narrowing the pay gap between low-income and higher-income workers.

more on the hollowing out of the middle class

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This article from the Federal Reserve Bank of San Francisco talks about how the “wage premium” (how much educated workers make compared to less educated ones) seems to have stopped growing recently, although it is still large.

Recent Flattening in the Higher Education Wage Premium: Polarization, Skill Downgrading, or Both?

Wage gaps between workers with a college or graduate degree and those with only a high school degree rose rapidly in the United States during the 1980s. Since then, the rate of growth in these wage gaps has progressively slowed, and though the gaps remain large, they were essentially unchanged between 2010 and 2015. I assess this flattening over time in higher education wage premiums with reference to two related explanations for changing U.S. employment patterns: (i) a shift away from middle-skilled occupations driven largely by technological change (“polarization”); and (ii) a general weakening in the demand for advanced cognitive skills (“skill downgrading”). Analyses of wage and employment data from the U.S. Current Population Survey suggest that both factors have contributed to the flattening of higher education wage premiums.

Bradford Delong on…I’m not sure what

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I have a sense that this long blog post by Bradford Delong contains some key insights or kernels of wisdom, but I just don’t quite have the language skills to translate from econospeak to English. I’ll give it a shot:

  • The human economy consists of two layers – the supply-and-demand market system governed by prices as envisioned in economics 101 textbooks, built on top of something more biological, our “propensity to be gift-exchange animals”.
  • Gift-exchange animals want to form relationships. We want wealth, but we want to feel like we have earned that wealth. We want to give, but we don’t want to feel like we are being taken advantage of.
  • What we are paid actually has a lot to do with what country, city and family we were born into, and all the knowledge and groundwork that was laid by the people who came before us in that location, and in the world/economy more generally.
  • Based on the above, he claims to be for some system of fair income or wealth allocation – “we need to do this via clever redistribution rather than via explicit wage supplements or basic incomes or social insurance that robs people of the illusion that what they receive is what they have earned and what they are worth through their work.”
  • He never quite explains what this would look like. He quotes another blogger, who suggests infrastructure, education, entrepreneurship, and something about removal of urban land use regulation that doesn’t quite make sense.

So I don’t quite know what my personal take-away from all this is but I feel like there is something there and if I ruminate on it for awhile it might come to me.

ending welfare as we knew it

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Washington Monthly has an interesting post on Bill Clinton’s welfare reforms. I admit, even though I lived through it I didn’t know much more than the sound bite version. The fuller version is that while he did allow Congress to drastically scale back welfare as it was known at the time, which was cash assistance to poor families with relatively few strings attached, he drastically scaled up the earned income tax credit, which ended up helping more people. The article ends by making an interesting case that the debate has actually shifted somewhat to the left since the 1990s, and there is actually somewhat of a bipartisan consensus that more is needed to fight poverty and help the poor develop job skills. At the same time, the poverty rate among children and minority children in particular is still shameful.

 

What did happen is that Clinton seized on one element of the conservative welfare reform agenda – work – and used it as leverage to create the broadest expansion of federal spending on poverty reduction since the New Deal. Welfare recipients should work, Clinton agreed, and the 1996 legislation set both a five-year time limit on benefits and imposed, for the first time ever, a requirement that recipients work to receive aid.

But Clinton also argued government’s obligation to “make work pay.” “No one who works full time and has children in the home should live in poverty,” said Clinton in 1996. It was a bargain that would win over the public, which soon shed its appetite for punishing the poor that conservatives had done their best to encourage. It also enabled Clinton to push through his ambitious agenda of new programs aimed at helping the working poor.

Clinton’s biggest win was the expansion of the EITC, which was framed as a precondition to passing welfare reform and which Congress passed in 1993. Today, the EITC is the federal government’s largest anti-poverty program, delivering $63 billion in benefits a year to nearly 28 million families. This makes it nearly four times the size of the federal block grants under Temporary Assistance to Needy Families (TANF) – the successor to AFDC. Researchers credit the EITC for dramatically increasing workforce participation for lower-income women (more so than the reform of AFDC). According to the Center on Budget and Policy Priorities, the EITC lifted 9.4 million people in working households out of poverty in 2013.

Nixon and basic income

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In 1969-70, Richard Nixon made an attempt to guarantee a basic income to all families in America.

Richard Nixon was not the most likely candidate to pursue the old utopian dream, but then history sometimes has a strange sense of humor. The same man who was forced to resign after the Watergate scandal in 1974 had been on the verge, in 1969, of enacting an unconditional income for all poor families. It would have been a massive step forward in the War on Poverty, guaranteeing a family of four $1,600 a year, equivalent to roughly $10,000 in 2016…

According to Nixon, this generation would do two things deemed impossible by earlier generations. Besides putting a man on the moon (which had happened the month before), they would also, finally, eradicate poverty.

A White House poll found 90% of all newspapers enthusiastically receptive to the plan to pay an unconditional income to all poor families. The Chicago Sun-Times called it “A Giant Leap Forward,” the Los Angeles Times “a bold new blueprint.” The National Council of Churches was in favor, and so were the labor unions and even the corporate sector. At the White House, a telegram arrived declaring, “Two upper middle class Republicans who will pay for the program say bravo.” Pundits were even going around quoting Victor Hugo – “Nothing is stronger than an idea whose time has come.”

It seemed that the time for a basic income had well and truly arrived.

“Welfare Plan Passes House […] a Battle Won in Crusade for Reform,” headlined The New York Times on April 16, 1970. With 243 votes for and 155 against, President Nixon’s Family Assistance Plan (FAP) was approved by an overwhelming majority. Most pundits expected the plan to pass the Senate, too, with a membership even more progressive than that of the House of Representatives. But in the Senate Finance Committee, doubts reared. “This bill represents the most extensive, expensive, and expansive welfare legislation ever handled,” one Republican senator said. Most vehemently opposed, however, were the Democrats. They felt the FAP didn’t go far enough, and pushed for an even higher basic income. After months of being batted back and forth between the Senate and the White House, the bill was finally canned.

In the following year, Nixon presented a slightly tweaked proposal to Congress. Once again, the bill was accepted by the House, now as part of a larger package of reforms. This time, 288 voted in favor, 132 against. In his 1971 State of the Union address, Nixon considered his plan to “place a floor under the income of every family with children in America” the most important item of legislation on his agenda.

But once again, the bill foundered in the Senate.

McKinsey on Income Stagnation

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The McKinsey Global Institute has noticed inequality in the world, and is concerned about automation making it worse. Part of their solution is – this is a bit shocking – “government taxes and transfers”. It appears they are talking about lower taxes and higher transfers, which they acknowledge might not be “sustainable”.

If the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80 percent over the next decade. Even if economic growth accelerates, the issue will not go away: the proportion of households affected would decrease, to between about 10 and 20 percent—but that share could double if the growth is accompanied by a rapid uptake of workplace automation.

The encouraging news is that it is possible to reduce the number of people not advancing. Labor-market practices can make a difference, as can government taxes and transfers—although the latter may not be sustainable at a time when many governments have high debt levels. For example, in Sweden, where the government intervened to preserve jobs during the global downturn, market incomes fell or were flat for only 20 percent of households, while disposable income advanced for almost everyone. In the United States, lower tax rates and higher transfers turned a decline in market incomes for four-fifths of income segments into an increase in disposable income for nearly all households. Efforts such as these—along with additional measures such as encouraging business leaders to adopt long-term thinking—can make a real difference. The trend of flat and falling real incomes merits bold measures on the part of government and business alike.

housing vouchers for all?

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This article argues that if the U.S. took away the mortgage interest tax deduction, it could provide a housing voucher to everyone below the median household income. That’s hard to believe, but the key is probably that the median is well below the average, because of course the income distribution is skewed toward the top. I like my mortgage interest deduction. It is an important part of my retirement strategy and as I am a bit above the median (but hardly rich) it would be hard for me to support this policy.

Here’s another article on BillMoyers.com that says if you took away the mortgage interest tax deduction, the cap on social security deductions, the lower rate on capital gains, and tax-advantaged retirement accounts, you could double Social Security benefits for everyone. There’s a bit of a trick here – these ideas are presented as revenue neutral, because you can think of all these tax breaks as money the government is spending, rather than money it is not collecting compared to what it could be collecting or what it has collected under some past policy. It would be very easy to paint these as tax increases instead, of course. Still, I could be more easily persuaded to support this policy that the first one, because I would be guaranteed to get a portion of the higher taxes I am paying now back when I am older, and I wouldn’t have to worry so much about savings or home equity now. I would know that people who are both richer and poorer than me would all get the same share I would get, which I might be able to accept on grounds of fairness. I’m not out in the streets campaigning for this policy yet, I have to think about it.