Reports from the Economic Front

by Martin Hart-Landsberg

Archive for May, 2010

Tax Policies

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States have a variety of different approaches to taxing income.  The following chart, which comes from the website VisualizingEconomics (which got the information from the Tax Foundation), illustrates this.  As it shows, some states have a special top tax rate for the highest earners, some a graduated tax rate with big brackets, others a flat tax, and still others no tax on income.

It is worth noting that almost all states are suffering from budget deficits requiring significant cuts in public spending and employment.

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May 30th, 2010 at 10:27 am

Immigration and Wages

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You wouldn’t know it from reading the press but most economists who have studied the effect of immigration on the wages of U.S. born workers have found a small but positive relationship.  In other words, as the chart below shows, immigration tends to boost the wages of U.S. born workers (and at all levels of education).  At the same time, immigration does tend to lower the wages of foreign born workers in the U.S.

For a more detailed look at the study that produced these results see the paper “Immigration and wages—Methodological advancements confirm modest gains for native workers” by Heidi Shierholz.

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May 25th, 2010 at 10:14 am

Job Creation: Does Anyone Remember?

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Do you remember when the big political issue was whether we needed another stimulus package to boost job creation and keep the economy growing?   Funny how that issue has seemingly dropped off the radar screen even though the need for a jobs program remains strong.

Business Week recently revisited the topic and concluded that “The economy is still weak and the risk of a stalled recovery remains very real.”  Among the reasons: state and local governments have just begun to implement massive cuts in spending and employment, the first federal stimulus is close to running its course, and exports are threatened by global instabilities (think Greece).

So–if we need another stimulus, how should it be delivered?  As the chart below makes clear tax cuts are not the way to go.  Rather, we need continuing support for social programs and direct government spending on infrastructure.  The former provides needed short term support while the latter helps to promote needed long term restructuring.

Unfortunately, political trends suggest that unless working people force this issue back onto the political agenda, we can expect slow growth, disappearing social programs, and high levels of unemployment for years to come.

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Public Sector Myths

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There is a growing attack on the public sector—its programs and its workers.  This is rather odd given the continuing weakness in the economy and our country’s enormous unmet social needs.  Even the situation in Greece is being manipulated to promote fiscal belt tightening in the United States.

It is true that state and local governments are struggling with deep deficits that cannot easily be financed.  Although these are largely the result of massive tax cuts on the wealthy, an explosion of inequality, and worsening economic trends (highlighted by the Great Recession), the media has generally focused attention on the need to cut programs and slash the number and pay of public sector workers.

Tragically, many private sector workers have been won over to the side of those who want to shrink government programs by their claims that public sector workers are pampered and overpaid.  This gets into a twisted logic, where one group of workers are being encouraged to undermine the gains of another group—generating not economic strength but a downward spiral in living and working conditions for the great majority.

However, leaving strategic considerations aside, the reality is that public sector workers are actually underpaid relative to their private sector peers.  It is true that on average, state and local government workers earn more than private sector workers.  But this is not a relevant comparison.  The reason is that the age, educational background, and gender of the two groups are not the same.

As a recent report by John Schmidt of the Center for Economic and Policy Research explains:

on average, state and local workers are . . . older and substantially better educated than private sector workers. Half of state and local employees have a four-year college degree or more, and almost one-fourth have an advanced degree. Less than 30 percent of private-sector workers have a four-year college degree, and less than 10 percent have an advanced degree. The typical state and local worker is also about four years older than the typical private-sector worker.

Sixty percent of state and local government employees are women, compared to 46 percent of employees in the private sector.

When state and local government employees are compared to private-sector workers with similar characteristics – particularly when workers are matched by age and education – state and local workers actually earn 4 percent less, on average, than their private-sector counterparts. For women workers, the public-sector penalty is about 2 percent of earnings; for men, it is about 6 percent of earnings.

The wage penalty for working in the state-and-local sector is particularly large for higher-wage workers. While low-wage workers receive a small wage premium in state-and-local jobs (about 6 percent for a typical low-wage worker), the typical middle-wage worker earns about 4 percent less in state-and-local work, and the typical high-wage worker makes about 11 percent less than a similar private-sector worker.

The Center for Economic and Policy Research report is based on data from 2009.  Another report, “Out of Balance? Comparing Public and Private Sector Compensation Over 20 Years,” which was commissioned by the Center for State and Local Government Excellence and the National Institute on Retirement Security, comes to the same general conclusion looking at trends over a longer period.

It is time for a spirited campaign that links public and private sector workers together around demands that actually defend worker interests.

Written by marty

May 16th, 2010 at 8:18 am

Economic Enlightenment–Help!!!

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A recent issue of an online journal, the Economics Journal Watch, included an article titled: “Economic Enlightenment in Relation to College-going, Ideology, and Other Variables: A Zogby Survey of Americans.”

Drawing on the results of a Zogby poll, the authors of the article concluded the following:

Economic enlightenment is not correlated with going to college, at least among the 4835 Americans who completed a Zogby International online survey. Economic enlightenment is highest among those self-identifying “conservative” and “libertarian,” and descends through “moderate,” “liberal,” and “progressive.”

Wow—is it true that college doesn’t contribute to economic enlightenment—and even more importantly that conservatives are more enlightened than progressives?

The question that immediately springs to mind is: what defines economic enlightenment?  And here is where it gets fun.  The Zogby survey which generated the data for the article included 21 questions on economics, 16 of which involved a question that required an answer in the following form:

1. Strongly Agree
2. Somewhat Agree
3. Somewhat Disagree
4. Strongly Disagree
5. Not sure

Of the 16 questions, the authors of the paper decided to focus on only 8 in their attempt to define economic enlightenment.  They “omitted 8 of the economic questions in that format because they are not as useful in gauging economic enlightenment, either because the question is too vague or too narrowly factual, or because the enlightened answer is too uncertain or arguable.”

So—here are the eight questions that the authors used to define economic enlightenment and the answers that defined unenlightened.  And, yes, I am taking this right from the article.

1. Restrictions on housing development make housing less affordable.
Unenlightened: Disagree

2. Mandatory licensing of professional services increases the prices of those services.
Unenlightened: Disagree

3. Overall, the standard of living is higher today than it was 30 years ago.
Unenlightened: Disagree

4. Rent control leads to housing shortages.
Unenlightened: Disagree

5. A company with the largest market share is a monopoly.
Unenlightened: Agree

6. Third-world workers working for American companies overseas are being exploited.
Unenlightened: Agree

7. Free trade leads to unemployment.
Unenlightened: Agree

8. Minimum wage laws raise unemployment.
Unenlightened: Disagree

Pretty unbiased, huh.  Clearly only an unenlightened person would think that free trade causes unemployment, or that multinationals exploit workers.  And only an unenlightened person would think that raising the minimum wage helps workers.

And remember these are the questions that are supposed to have clear cut, unambiguous answers.

There are in fact grounds for challenging the “correct” or “enlightened” answers to all of the questions—or at least demanding a clarification of what is the critical issue underlying the question.  For example, rent control doesn’t reduce housing supply for the simple reason that new housing is normally not covered by rent control.  A company that dominates a market might not be a monopoly in a technical sense but could well exercise monopoly like power.  As for comparing our standard of living now with 30 years ago—real wages are certainly lower.

This is downright embarrassing, what else can one say.

How about this for fun—if you have ideas for better questions send them along as comments.  Lets see if we can collectively create something a bit more useful.

Finally, if you have some extra time you might want to check out the results of a recent national survey by the Pew Center for the People and the Press  “that tests reactions to words and phrases frequently used in current political discourse.”  Among other things, the survey results revealed that:

“Socialism” is a negative for most Americans, but certainly not all Americans. “Capitalism” is regarded positively by a majority of the public, though it is a thin majority. There are certain segments of the public – notably, young people and Democrats – where both “isms” are rated about equally.

Young people are more positive about “socialism” and more negative about “capitalism” than are older Americans.  Among those younger than 30, identical percentages react positively to the words “socialism” and “capitalism” — 43% each.

Written by marty

May 9th, 2010 at 3:26 pm

Wealth Concentration–It Keeps Growing

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In my last post I shared some data on wealth concentration as of 2007.  Most commentators have assumed that the Great Recession worked as a leveler.  Specifically, that the crash of the financial markets would hit the wealthy harder than everyone else.

Well, it appears that was a faulty assumption.  As Robert Frank reports in the Wall Street Journal:

New calculations by Edward Wolff, the New York University economist and an expert on U.S. wealth statistics, show that the top 1% actually held onto its share of national wealth in the crisis, and may have even gained a bit.

According to his analysis, the top 1% held 34.6% of all national wealth in 2007. By Dec. 31, 2009, they held 35.6%.

Meanwhile, share of national wealth held by the bottom 90% fell to 25% from 27%.

To be clear, the super wealthy also lost during the current recession, just not as much as everyone else.  The resulting increase in wealth concentration during this current recession is very unusual–past recessions always did work to reduce (although only slightly) wealth inequality.

This trend looks unstoppable as long as existing relations of power and patterns of economic activity continue.

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May 5th, 2010 at 7:15 am

Capitalism And Class

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Capitalism is a system driven by the pursuit of profit.  Corporations, for example, take action not to ensure the satisfaction of their workers or community needs, but to maximize the return to those who own the company’s assets–the stockholders.

Of course, in theory, the actions taken to maximize returns to wealth (which includes business and land property, stocks, bonds, and the like) will indirectly lead to outcomes that benefit all (or the great majority) of us–but that is a theory and the conclusion depends on a great many assumptions.

The fact is that wealth is highly concentrated in this country, which means that when our corporations and government take actions to maximize returns to wealth holders, they are actually responding to the direct interests of a very small minority.

How concentrated is wealth in this country?  Professor William Domhoff draws on a number of studies to report the following:

As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one’s home), the top 1% of households had an even greater share: 42.7%.

Here is a look at the 2007 distribution of wealth.

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A look at the distribution of wealth by asset is especially revealing.  In 2007, as the chart below shows, the top 1% hold 62% of all business equity, 61% of all financial securities, and 38% of all stocks and mutual funds.   This concentration of ownership means that the top 1% have enormous power not just to enjoy the rewards of our economic activity, but to directly shape it according to their own interests.

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The trend in the distribution of “capital income,” which is income from capital gains, dividends, interest, and rents,  probably offers the clearest picture of the class trajectory of our system.   As the chart below reveals, the top 1% has been steadily commanding a greater and greater share of capital income.

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Next time you hear some commentator talk about how we are all in it together and that we should cheer when the stock market or profits go up–remember these charts and think about how few directly benefit.  And then think about what policies helped to boost those returns to capital–like wage reductions, capital flight, corporate bailouts.  It is a great system for some of us.

Written by marty

May 1st, 2010 at 8:07 am