Progressive intelligence and opinion

Blue vs. Red States: Income and the vote

noreply@blogger.com (B. S. E.) — Fri, 03 Oct 2008 06:40:00 +0000

Obama's health care plan

noreply@blogger.com (B. S. E.) — Sat, 27 Sep 2008 19:50:00 +0000

According to John Holahan and Linda J. Blumberg of the Urban Institute, a largely government sponsored nonpartisan think tank founded by the LBJ administration to study urban poverty issues and investigate possible remedies, delivered the following conclusion after assessing Obama's health care plan:

Our general assessment of the Obama plan is that it would

•greatly increase health insurance coverage but would still leave about 6 percent of the non-elderly population uninsured, compared to 17 percent today.
•substantially increase access to affordable and adequate coverage for those with the highest health care needs, including those with chronic illnesses, by spreading health care risk broadly;
•significantly increase the affordability of care for low-income individuals; and
•reduce the growth in health spending through a broad array of strategies.

In short, Obama’s proposal contains the basic components necessary for effectively addressing the most important shortcomings of the current health care system, that is, limited coverage, inadequate risk pooling, and high-cost growth.

How Wall Street caused America's economic meltdown

noreply@blogger.com (B. S. E.) — Sat, 27 Sep 2008 07:46:00 +0000

The Bush tax cuts: Supply-side economics fails again

noreply@blogger.com (B. S. E.) — Sat, 27 Sep 2008 01:38:00 +0000

Why taxing the rich is good economics

noreply@blogger.com (B. S. E.) — Sat, 27 Sep 2008 01:36:00 +0000

Democrats are good for the economy!

noreply@blogger.com (B. S. E.) — Sat, 27 Sep 2008 01:33:00 +0000

From Alan S. Binder, professor of economics and public affairs at Princeton and former Vice chair of the Fed, in his New York Times op-ed:

Simply put, the United States economy has grown faster, on average, under Democratic presidents than under Republicans.

The stark contrast between the whiz-bang Clinton years and the dreary Bush years is familiar because it is so recent. But while it is extreme, it is not atypical. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

That 1.14-point difference, if maintained for eight years, would yield 9.33 percent more income per person, which is a lot more than almost anyone can expect from a tax cut.

Such a large historical gap in economic performance between the two parties is rather surprising, because presidents have limited leverage over the nation's economy. Most economists will tell you that Federal Reserve policy and oil prices, to name just two influences, are far more powerful than fiscal policy. Furthermore, as those mutual fund prospectuses constantly warn us, past results are no guarantee of future performance. But statistical regularities, like facts, are stubborn things. You bet against them at your peril.

The second big historical fact, which might be called the Great Partisan Inequality Divide...

It is well known that income inequality in the United States has been on the rise for about 30 years now - an unsettling development that has finally touched the public consciousness. But Professor Bartels unearths a stunning statistical regularity: Over the entire 60-year period, income inequality trended substantially upward under Republican presidents but slightly downward under Democrats... when Democrats were in the White House, lower-income families experienced slightly faster income growth than higher-income families - which means that incomes were equalizing. In stark contrast, it also shows much faster income growth for the better-off when Republicans were in the White House - thus widening the gap in income.

Why education is not to blame for higher inequality

noreply@blogger.com (B. S. E.) — Wed, 20 Aug 2008 05:03:00 +0000

Poverty in the U.S.

noreply@blogger.com (B. S. E.) — Wed, 20 Aug 2008 05:02:00 +0000

Freedom is created by government: Why we all live off taxes

noreply@blogger.com (B. S. E.) — Wed, 20 Aug 2008 05:00:00 +0000

Off-shore drilling is bad, high oil prices arn't.

noreply@blogger.com (B. S. E.) — Wed, 20 Aug 2008 04:58:00 +0000

What is liberalism? Hint: It's got nothing to do with big government.

noreply@blogger.com (B. S. E.) — Wed, 20 Aug 2008 04:56:00 +0000

Obama vs. McCain, whose tax policy will benefit you?

noreply@blogger.com (B. S. E.) — Mon, 07 Jul 2008 01:45:00 +0000

Both Obama and McCain have tax cuts in store for America; Obama will shift the tax burden so the vast majority of Americans will pay less and the rich closer to their fair share.Obama will let the Bush tax cuts expire (which is not the equivalent of a tax increase unless you live in Bizarro world and reason with Bizarro logic), while McCain wants to continue wasting resouces on handouts for the rich. Here's who much you will save under either Obama or McCain (note that there many other variables you need to take into consideration when making up your mind about tax policy, e.g. a tax cuts may save you $2,000 a year, but eliminate a program that is of greater value to you - such as having better roads to drive on, living in society where the poor don't go homeless, etc...). Keeping in mind that you shouldn't favor a tax policy simply based on how much cash you save, here is the direct effect either Obama's or McCain's tax plan will have on your wallet:

If you make $0 to $20,000 you will save:
$567 under Obama
$19 under McCain

If you make $20,000 to $38,000 (about 40% of American households make less than $38,000) you will save
$892 under Obama
$113 under McCain

If you make $38,000 to $66,000 (note the median household income is $46,000 as of 2007, more than 2-thirds of Americans make less than $66,000), you, along with the vast majority of Americans will save,
$1,042 under Obama
$319 under McCain

If you make $66,000 to $112,000, along with about 87% of Americans who make less than $110,000, you will save
$1,290 under Obama
$1,009 under McCain

If you make $112,000 to $161,000 you will save
$2,204 under Obama
$2,614 under McCain

If make $161,000 to $227,000, putting you in at least the top ca. 6-7% of American households), you will save
$2,780 under Obama
$4,380 under McCain

If are at least among the top 2.5% and make between $227,000 to $603,000 you will pay $19 more under Obama and save $7,781 under McCain

If you are among the 1%, but not 0.1%, i.e. semi-rich (I usually use $1,000,000 per year as the cut-off for what I call "rich"), making $603,000 and $2,900,000 , you will pay $115,974 more under Obama and $45,361 under McCain

Finally, if you are super-rich, making $2,900,000 or more (only about 0.2%-0.1% of Americans do), you will pay $701,885 more under Obama and save $269, 364 under McCain (note that many in this group make far more than $2.9 million - the Fortune 400, for example, had an average income of $214 million in 2007)

Simply put, unless you are among the bottom 99.2%, you will pay less taxes, less so under Obama if you make less than $112,000 and about as much as under McCain if you are in the bottom 94% and make less than $161,000. If you make more than $603,000 you will pay more under Obama, but perhaps you have a concience and favor poverty relief, universal health care and a good education for everyone, and are thus willing to see the Bush tax cuts expire.

Why the GOP just isn't what it used to be

noreply@blogger.com (B. S. E.) — Mon, 07 Jul 2008 01:44:00 +0000

What would you call a president who raised taxes on the rich, introduced new environmental protection measures, proposed a universal health care system and basic minimum income? Why sure, that must be a liberal democrat. Quite liberal too. Even moderate Democrats don't dare to actually propose a minimum income (though all developed countries, except us have one, acheived through universal income support). The man I speak of, however, was not a Democrat. It was Richard Nixon. Think Nixon was an analomy within the GOP? Nope. Nixon repesented what was then the mainstream of the GOP. Eisenhower and Ford, would probably be denounced as "socialists" by modern day conservatives (Eisenhower actually refered to those Republicans who wanted to undo the New Deal as "stupid" in a letter he sent to his borther - yes, he actually wrote "they are stupid"). It was not until the late 1970s and early 1980 that Goldwater-style redicals (by the standards of the time, today's GOP would have been considered radically right-wing), hi-jacked the GOP and pushed it to the right.
As Paul Krugman, the famous Princeton economist and winner of the John Bates Clark Medal (one of the most coveted awards in the field of economics) points out,

In addition to proposing universal health care, Nixon pushed for a gurnateed minimum income. On the revenue side, Nixon pushed through a tax increase in 1969, including creation of the alternative minimum tax, which was intended to crack down on wealthy Americans... On another front he passed the Clean Air Act, and sent dozens of environmental measures to Congress... Nixon, in short, was a transitional figure. Although he used of the political tactics associated with movement conservatism, he was a pargmatist rather than an ideologue, as were many Republicans. The character of the Republican Party changed rapidly in the post-Nixon years...

Ronald Reagan was the first movement conservative president. Within Ronald Reagan's inner circle, views that had once been confined to what Eisenhower descrived as a "tiny splinter group" reigned...

[While Reagan's ability to push through as much conservative policies as he would have liked was limited by a Democratic House and the remains of the moderate GOP]... after Reagan... the GOP became thoroughly radicalized. Consider the 2004 Platform of the Texas Republican Party... It calls for the elimination of federal agencies 'including, but not limited to, the Bureau of Alcohol, Tabacco and Firearms; the position of Surgeon General; the Environmental Protection Agency; the Departments of Energy, Housing and Urban Development, Health and Human Services, Education, Commerce, and Labor.' The platform also calls for the privitization of Social Security and the abolition of the minimum wage. In effect Texas Republicans want to repeal the New Deal completely [like the folks whom Eisenhower called "stupid"]...

The moder Republican Party, then, has been taken over by radicals, people who want to undo the twentieth century. There hasn't been any corresponding radicalization of the Democratic Party, so the right-wing takeover of the GOP is the underlying cause of today's bitter partisanship. (Concience of a Liberal, W. W. Norton, 2007, pp. 161-163)

Modern day "movement conservatives" would love America to forget about the GOP mainstream of the 50s, 60s and 70s. They admire Reagan and Goldwater, while hardly mentioning Ford, Eishenhower, Rockefeller, LaGuardia or Nixon. McCain was one of the few remaining moderate Republicans, until he set his sights on the presidency in 2005 and converted to being a movement conservative, complete with all the rimmings, like adherence to the supply-side dogma that is dismissed by most economists as pure hogwash. Here is the answer as to why our current political discourse is so tense and partisanship so pervasive. The pragmatic and moderate GOP has been taken over by die-hard right-wing ideologues.

Do not subsidize gas & oil; high gas prices are a good thing!

noreply@blogger.com (B. S. E.) — Mon, 07 Jul 2008 01:43:00 +0000

I repeat do not subsidize gasoline and oil. It is good that oil and gas are more expensive now than in the past. Why? Because, it will help wean us of oil. Higher gas prices, give incentive to consumers to buy more fuel efficient cars, incentive to auto makers to produce more fuel efficient cars (if the most up-to-date technology was used, for example, my Lincoln could get about 40 MPG, rather than 20), and drive less (which reduces congestion and pollution). Oil companies will have more incentive to look for alternative sources of energy. In sum, we need high prices to work for us.

But how can you say that? People are suffering? How can you be indifferent to the pain at the pump felt by so many Americans? I am not. People are suffering, but there are ways to compensate for higher oil prices. Rather than subsidizing gasoline, we should, for example, subsidize secondary education more heavily. Mr. and Ms. Smith may still be angry having to pay $4+ at the pump, but now they pay less for their daughter's college tuition. Reducing drug prices through centralized price bargaining (a very successful technique employed by all those other countries that get better health care than we do for less money), is another possibility. With lower college tuitions and drug prices (these are just two examples; the point is we should subsidize goods whose consumption causes positive externalities - e.g. education creates are more cultured and skilled populace - to compensate for higher gas prices), Mr. and Ms. Smith will be under no greater financial pressure than before. Yet, they will driving less, are more likely to buy a fuel efficient car - making car makers more likely to make such a car, and be consuming more of those goods that have a positive effect on society overall, e.g. graduate school for Smith Jr.

The welfare state lowers mortality

noreply@blogger.com (B. S. E.) — Mon, 07 Jul 2008 01:42:00 +0000

With a substantial reduction in poverty and inequality, one would expect the welfare state to reduce mortality. Empirical evidence suggests that this assumption is indeed correct. Even without a very in-depth analysis the correlation between welfare state spending and mortality is easily visible. Gains in life expectancy across the world were largest during the Keynesian consensus and have dropped off since the rise of neoliberalism in the early 1980s for those in the lower reaches of the socio-economic strata. According to Ezzati, Friedman, Kulkarni and Murray (2008), "there was a steady increase in mortality inequality across the US... between 1983 and 1999, resulting from stagnation or increase in mortality among the worst-off segment of the population." According to Conley and Springer (2001), increases in welfare state spending along with increases in GDP per capita correlated strongly with decreases in infant morality.
Empirical evidence that goes beyond exposing casual correlations further supports the notion that the welfare state reduces mortality. Pampel and Pallai (1983) examined infant mortality in developed countries between 1950 and 1975. They found that the mothers' educational attainment played the most important role in reducing infant mortality. Gross national income, along with overall social expenditure and less inequality also reduced infant mortality. Inequality and the number of physicians per capita were not as great a factor for developed countries as for developing countries, though both remained important variables. To explain this phenomenon the authors suggest that regarding the number of physicians, developed countries "appear to have a reached a saturation point" (p. 537). Regarding inequality, all developed nations seem to have reached a level of affluence where even the poor receive the most rudimentary levels of care. The U.S. stands out, with relatively high female educational attainment, high per capita income and, unlike what one would expect, high infant mortality. The authors assert that America's higher rate of teenage pregnancies, heterogeneous population and lackluster access to hospital beds is partially to blame. The findings by Pampel and Pallai do, however, suggest that the welfare state reduces infant mortality. It is, after all, the welfare state that educates the vast majority of women and men in all developed countries and reduces the effects of inequality by providing universal health care.[1]

More recent evidence on the relationship between of infant mortality and welfare state spending, underlines the important role of the welfare state in reducing morality. According to Conoley and Springer (2001), welfare state spending considerably reduces the infant morality rate (IMR) and incidence of children born with an excessively low birth weight (LBW). The authors found that,

Each additional 1% in per capita health care spending... is associated with a reduction in the LBW rate by 0.129% and the IMR by 0.184%... Over a five-year period, an increase of 1% in per capita of health spending (per year on average) may yield a decrease in the LBW rate of 0.182%. The cumulative effects of state spending on infant mortality are even more impressive. The same increase in spending is associated with a 0.348% reduction in the infant death rate. (p. 799) Cultural differences and biology cannot, according to Conoley and Springer, explain such a correlation.

Sen (1998) reported similar findings in his Innocenti Lecture of UNICEF. Sen finds that in the UK, between 1900 and 1960, increases in life expectancy correlated poorly with increases in per capita income but strongly with expansions of the welfare state. While Sen stresses the existence of a significant positive correlation between higher per capita income and higher life expectancy, he finds that per capita income effects life expectancy through "the incomes specifically of the poor, and... public expenditure, specifically on public health. In fact, once these two variables are included in the statistical relation, the connection between GNP per head and life expectancy altogether vanishes" (pp. 8-9). While evidence on the exact impact of public health spending in particular is somewhat ambiguous, according to the literature review conducted by Conoley and Springer, their study, that of Pampel and Pallai as well as the evidence presented by Sen, unambiguously suggests that the welfare state in all its faculties reduces mortality - be it through public health expenditure, poverty relief or education.
[1] Even in the U.S. hospitals are required to provide the most rudimentary of care to patients, including assistance during childbirth, even if patients are uninsured or unable to pay.

References:
Conley, D. & Springer, K. W. (2001). Welfare state and infant mortality. The American Journal of Sociology, 107(3), 768-807. Retrieved April 14, 2008 from JSTOR: http://www.jstor.org/stable/3081151
Ezzati, M., Friedman, A. B., Kulkarni, S. C., & Murray, C. J. L. (2008). The reversal of fortunes: Trends in county mortality and cross-county mortality disparities in the United States. PLoS Medicine, 5(4), e66. Retrieved April 29, 2008 from the PLoS Medicine journal web-site: http://medicine.plosjournals.org/perlserv/?request=get-document&doi=10.1371/journal.pmed.0050066&ct=1
Pampel, F. C. & Pillai, V. K. (1986). Patterns and determinants of infant mortality in developed nations: 1950-1975. Demography, 23(4), 525-542. Retrieved April 29, 2008 from JSTOR: http://www.jstor.org/stable/2061349
Sen, A. (January 1998). Mortality as an indicator of economic success and failure. The Economic Journal, 108(446), 1-25. Retrieved March 29, 2008 from JSTOR: http://links.jstor.org/sici?sici=0013-0133%28199801%29108%3A446%3C1%3AMAAIOE%3E2.0.CO%3B2-7

How to judge the welfare state

noreply@blogger.com (B. S. E.) — Mon, 07 Jul 2008 01:40:00 +0000

What criteria should we use to judge the welfare state; the institution, whose most prominent features in the U.S. are public education, Social Security, income support, poverty relief, Medicare and Medicaid?

To meet its overarching goal of advancing the common good through the provision of positive freedom and second generation rights, the welfare state aims to reduce and prevent social suffering and strive towards a more just and efficient allocation of resources. The market is limited in its ability to perpetuate freedom. The libertarian view that the market enhances liberty by resting all decision making power within the hands of private individuals is much too simplistic. Freedom is greatly determined by the number of available opportunities and best alternatives. The market itself, barring externalities, is only weakly efficient in providing the full spectrum of freedom (Sen, 1993). Life is the most essential requirement for liberty, as we cannot take advantage of any opportunity, make any decision or experience anything we have reason and ability to value, without it. The reduction of mortality is, therefore, among the most major goals of the welfare state (Sen, 1998). Another basic requirement for liberty and equity is the absence of poverty. As the English essayist Samuel Johnson noted, "poverty is the great enemy to human happiness; it certainly destroys liberty, and it makes some virtues impracticable, and others extremely difficult" (Johnson as cited in Barr, 2004, p. 213). Least, but not last, social justice is imperative to the provision of second generation rights and the perpetuation of the common good; it is an essential requirement for the creation of any civil society (See Sachs & Santarius, 2007, pp. 1-32). For these reasons, one should determine the success or failure of the modern welfare state, and hence its desirability, by examining its ability to reduce poverty, inequality, mortality and thus injustice and inefficiency.

While mortality is rather easy to define, the same is not the case for poverty and much less for injustice. Much of the controversy regarding the definition of poverty has concentrated on whether or not to measure it in relative or absolute terms. As Amartya Sen (1983) explained, "there are... great uncertainties about the appropriate way of conceptualizing poverty in the richer countries... Should the focus be on ‘absolute' poverty or ‘relative' poverty?" (p. 153). I, therefore, suggest to include studies using both relative and absolute measures of poverty. The poverty thresholds used in these studies should be congruent with those commonly used by widely respected institutions, such as the United Nations Human Development Program (UNDP).

As noted above, the definition of social justice is complicated and heavily influenced by ideology. Rawls stipulated that resources should be distributed in such a manner as to maximize benefit for the least advantaged members of society. Any inequality can only be justified if it is beneficial to the weakest members of society (Rawls in Barr, 2004, pp. 47-50). According to a perhaps more familiar conception of social justice by Miller, social justice consists of three components: rights, deserts and needs. The first consists of largely of negative first-generation rights, such as equality before the law and freedom of speech. The second consists of "the recognition of each person's action and qualities," which implies proportional compensation for one's contributions to society. Any judgment on what constitutes due recognition for a given action or quality will inevitably be made relative to other members of society (e.g. it is not possible to determine whether or not my income constitutes a just reward without comparing it to that of others). The third component of justice consists of "the prerequisites for fulfilling individual plans in life" (Barr, 2004, pp. 50-51). The needs component underlines the close, complex relationship between social justice and positive freedom. The former cannot exist without the latter, nor can the latter exist without the former. Different ideologies emphasize different elements of social justice. Libertarians emphasize the deserts element, while democratic socialists emphasize the needs element. Modern liberals approach of attempt to emphasize all three as equally as possible (Barr, 2004, pp. 51-60).

References:
Barr, N. (2004). Economics of the welfare state. New York: Oxford University Press.
Sachs, W. & Santarius, T. (2007). Justice for realists. In Fair future: Resource conflicts, security & global justice. New York: Zed Books, pp. 1-32.
Sen, A. (1983). Poor, relatively speaking. Oxford Economic Papers, 35(2), 153-169. Retrieved March 16, 2008 from JSTOR: http://links.jstor.org/sici?sici=0030-7653%28198307%292%3A35%3A2%3C153%3APRS%3E2.0.CO%3B2-1
Sen, A. (1993). Markets and freedom: Achievements and limitations of the market mechanism in promoting individual freedoms. Oxford Economic Papers, 45(4), 519-541. Retrieved March 28, 2008 from JSTOR: http://links.jstor.org/sici?sici=0030-7653%28199310%292%3A45%3A4%3C519%3AMAFAAL%3E2.0.CO%3B2-H
Sen, A. (January 1998). Mortality as an indicator of economic success and failure. The Economic Journal, 108(446), 1-25. Retrieved March 29, 2008 from JSTOR: http://links.jstor.org/sici?sici=0013-0133%28199801%29108%3A446%3C1%3AMAAIOE%3E2.0.CO%3B2-7

Libertarianism is a crock!

noreply@blogger.com (B. S. E.) — Mon, 07 Jul 2008 01:39:00 +0000

When markets fail to allocate resources justly and efficiently, society is harmed. It is the role of government to prevent harm. John Stuart Mill articulated when it is appropriate and inappropriate for government to use its coercive powers and contravene upon individuals' decision making freedom in his classic On Liberty:

Whenever... there is a definite damage, or definite risk of damage, either to an individual or to the public, the case is taken out of the province of liberty, and placed in that of morality or law. But with regard to the merely contingent... injury... to society, by conduct which neither violates any specific duty to the public, nor occasions perceptible to any assignable individual except himself; the inconvenience is one which society can afford to bear, for the sake of the greater good of human freedom. (p. 54)

Excessive inequality and failures to met basic needs, which causes injustice and inefficiency, constitute "definite damage," or at least a "definite risk of damage." When the market fails, the state has the right and responsibility to use its coercive powers to bring about a more just and efficient distribution of resources. To briefly illustrate the theoretical need for state intervention I will focus on the four most prominent functions of the welfare state: redistribution, health care, education and social insurance - redistribution being an overarching concept, achieved partially through the other three welfare state functions.

But what keeps the state in check? It is important to note that active state involvement in the economy does not signal descent into a totalitarian system of government. It is fallacious to suggest that unless people abstain from supporting only the most meager of welfare states, excessive state control with negative effects outweighing the benefits of government intervention will follow. Arguing, as Hayek did, that interventions for the sake of social justice will result in government control over the economy to the point where such will destroy "personal freedom," is a slippery slope fallacy. Furthermore, this fallacious line of reasoning ignores the mechanism in place to curb state power. As introductory political science textbooks tells students (e.g. Henschen & Sidlow, 2000) a system of checks and balances, a hard to amend constitution and the democratic system itself are designed to curb run-away government intervention and prevent the "tyranny of majority." The modern liberal viewpoint sees these mechanisms as guarding against excessive state power. As Starr (2007), a prominent modern liberal scholar put it,

A state... can be strong but constrained - strong because constrained... Rights to education and other requirements for human development and security aim to advance equal opportunity and personal dignity and to promote a creative and productive society. To guarantee those rights, liberals have supported a wider social and economic role for the state, counterbalanced by more robust guarantees of civil liberties and a wider social system of checks and balances anchored in an independent press and pluralistic society. (p. 21)

There is no reason to believe that the modern welfare state and assertive fiscal policy will mark an inevitable move towards authoritarian rule. If it was true, as Hayek argued, that "government intervention... [generates] the need for additional corrective intervention... [leading] to a larger role for government [which] will eventually push society toward socialism" (Clark, 1998, p. 46) then one would have to wonder why the developed countries, all of whom have maintain mixed economies for the better part of the 20th century, have not yet succumb to totalitarian socialism a la Soviet Union.

Mindblowing inequality isn't just unfair but inefficient! McCain needs an economics lesson.

noreply@blogger.com (B. S. E.) — Thu, 29 May 2008 20:34:00 +0000

Many people beleive that there had to be a trade-off between social justice and efficiency; that the persuit of the former will inevitably have to come at the expense of the latter. Yet, social justice and efficiency tend to correlate highly. Now, let me explain why injustice and inefficiency correlate so strongly...

First, let me explain social justice real quick: according to Miller (1999) it consists of three components: need, desert and equalty. Needs are just that: needs - in a just distribution of resoucres all basic needs neccessary for individual development are met; deserts are rewards for contributions to society - they should equal one's contributions, i.e. what you put in, is what you get out; equality here describes the idea that citizenship is to be distributed equally, i.e. no is to be degraded to the status of being a second class citizen.

The distribution of household income in the U.S. lends itself as an example for why redistribution is necessary for the sake of efficiency and social justice. While inequality decreased during the Keynesian consensus when the top marginal income tax rate was set in excess of 70% (Wilson, 2002), the trend has since reversed. Between 1947 and 1979, while modern liberal fiscal policy was virtually unchallenged in the U.S. (Clark, 1998, pp. 98-102), the mean gross family income of the top 5% increased by 86%, compared to 99% for the top quintile overall, 114% for the fourth quintile, 111% for the middle quintile, 100% for the second quintile and 116% of the bottom quintile, compared to 81%, 53%, 25%, 15%, 9% and -1% between 1979 and 2005, respectively (Hartman, 2008). Figures for the pre-tax income distribution of households since 1980 were similar to those of families (Miller, 2007). According to Yellen (2006) in her Economics of Governance Lecture at the University of California, Irvine, since the 1970s "growth [in real income] was heavily concentrated at the very tip of the top, that is, the top 1 percent." In 2005, the top 1% earned roughly 20% of all gross household income, with a mean of $867, 800. The top 0.1% saw incomes in excess of $1.6 million and earned roughly 7.5% of all income. The top 0.01% earned 3% of all income (Saez, 2007). With a decline in tax rates the same trend has manifested itself in after-tax household income. Between 1979 and 2005, the top 1% saw its mean net household income increase by 176%, compared to 69% for the top quintile overall, and 29%, 21%, 17%, 6% for the remaining quintiles, respectively. In constant 2004 dollars, the absolute increase in mean income of the top 1% for this time span amounts to over half a million dollars, having jumped from $314,000 to $867,800 (Aron-Dine & Sherman, 2007). Meanwhile, "the bottom 60% of U.S. households earned only 95 cents in 2004 for every dollar they made in 1979" (Cypher, 2007, p. 120). Overall, since 1979, the share of pre-tax income of the top 1% doubled; the share of the top 0.1% more than tripled and the share of the top 0.01% almost quintupled (Saez, 2007; see figure 2).

This allocation of resources is inefficient as significant opportunity costs arise. For example, the Bush tax cuts, which lowered the top marginal tax rate from 40% to 35.6% (Wilson, 2002), cost roughly $250 billion per year. As of December 2006, these cuts have cost $1.2 trillion and contributed to 51% of the deficit incurred by the Bush administration (Fielder & Kogan, 2006). There are other uses for these funds, however, from which society can derive more utility. Funding is desperately needed to repair the nation's ailing physical plant. In 2005, the American Society of Civil Engineers gave the U.S. infrastructure a grade of D. Drinking and waste water systems were graded as D-. According to the society, "congested highways, overflowing sewers and corroding bridges are constant reminders of the looming crisis that jeopardizes our nation's prosperity and our quality of life." An estimated $1.6 trillion will be needed in repairs over the course of four years. David Leonhard of the New York Times (2007) asked himself the question of "What $1.2 trillion could buy." A universal pre school program, doubling of cancer research funding, a global immunization campaign and treatment for every American suffering from untreated heart disease and diabetes top his list. Yet, by letting the very rich keep a greater share of the nation's resources, the Bush administration has foregone all of the benefits American society could have derived from a better infrastructure, health care and education system. Thousands of lives could have been saved had the Bush administration not lessened the redistributive effect of the American welfare state. Even if these tax cuts spurred growth, though that seems doubtful and skepticism among American economists prevails,[1] these benefits are likely outweighed by the harm imposed upon society by the large opportunity cost of letting the rich get richer (Price, 2005; Aron-Dine & Kogan, 2006; Gale & Orszag, 2003; Price & Ratner, 2005).

The opportunity cost that result from not taxing the rich adequately and expanding social services violate the needs component of social justice and a widening disparity between the top 1% and everyone else violates the deserts component of social justice. It is easy to see how spending less on social service and infrastructure will result in a more uneven playing field and the failure to universally provide second generation rights. People need a sound infrastructure, education and other social services to live productive and fulfilling lives. If, however, the infrastructure deteriorates and many diseases, such as heart disease and diabetes, go untreated, not everyone's needs are met; violating the needs component of social justice. The violation of the deserts component can be illustrated by comparing the incomes of the most esteemed and highly educated workers to those of the top 1%. Both professors and lawyers are among the most admired professions in the U.S. - second only to physicians and a "department head in a state government" (Gilbert, 1998, p. 40). Both professions require intense and lengthy training and their ranks are commonly filled with the most educated 2% of adults (U.S. Census Bureau, 2008; U.S. Department of Labor, 2007ab). Yet, their median earnings fall far short of the rich. In 2006, the median income for a professor was $73,000, ranging from $59,000 for an assistant professor to $99,000 for a full professor (U.S. Department of Labor, 2007a). The median salary for a lawyer was clocked at $102,000 in 2006 (U.S Department of Labor, 2007b). According to these statistics the average household in the top 1% earns as much as twelve professors or eight lawyers combined. A household at the bottom of the top 0.1% earned as much as 22 professors, or 16 lawyers combined. The mean income of the 400 richest Americans in 2007 was $214 million (Herman, 2008); 2,931 times as much as a professor and 2,098 times as much as a lawyer. By contrast the gap between these highly skilled professionals and the median full-time, year-round employed worker, age 25+, who made $41,000 in 2006 and is most likely not a college graduate, is much smaller (U.S. Census Bureau, 2007a). Unless the difference in income between these groups is equal to the difference in contributions to society (which seems doubtful), the gaping inequality between the top 1% and everyone else violates the deserts as well as the needs component of social justice.

So there you have it, undertaxing the rich leads to a gian waste of resoucres and injustice. But don't take my word for it; just condier that more than three quarters of economists have been reaching this very same conclusion for over 70 years. This is why most economists are Democrats and McCain, who supports making the Bush tax cuts permanent, is not likely to have many AEA (American Economics Association) and APSA (American Political Science Association) members behind him. Hillary might have blown part of her support among economists and political scientists with her idea for a gas tax holiday. Obama on the other hand, seems a wise choice.

As usual, here are my references:

American Society of Civil Engineers. (2005). Report Card for America's Infrastructure. Retrieved April 25, 2008 from the American Society of Civil Engineers: http://www.asce.org/reportcard/2005/index2005.cfm
Aron-Dine, A. & Kogan, R. (June 5, 2006). A Mere $300 Billion: Should a $300 billion Deficit Be Considered a Victory? Retrieved April 25, 2008 from the Center on Budget and Policy Priorities: http://www.cbpp.org/5-22-06bud.htm
Aron-Dine, A. & Sherman, A. (January 23, 2007). New CBO Data Show Income Inequality Continues to Widen: After-tax-income for Top 1 Percent Rose by $146,000 in 2004. Retrived April 25, 2008 from the Center on Budget Policy and Priorities: http://www.cbpp.org/1-23-07inc.htm
Clark, B. (1998). Political economy: A comparative approach. Westport, CT: Preager.
Cypher, J. M. (January-February, 2007). Slicing up at the long barbeque: Who gorges, who serves and who gets roasted. In C. Sturr & R. Vasudevan (Eds.), 2007, Current economics issues. Boston: Economic Affairs Bureau.
Gale, W. G. & Orszag, P. R. (May 9, 2003). Bush's tax plan slashes growth. Retrieved April 25, 2008 from The Brookings Institution: http://www.brookings.edu/views/op-ed/gale/20030509.htm
Gilbert, D. (1998). The American class structure: In an age of growing inequality. Belmont, CA: Wadsworth Publishing.
Hartman, C. (2008). By the numbers: income. Retrieved April 25, 2008 from inequality.org: http://www.demos.org/inequality/numbers.cfm#1
Leonhardt, D. (January 17, 2007). What $1.2 trillion can buy. Retrieved April 25, 2008 from the New York Times: http://www.nytimes.com/2007/01/17/business/17leonhardt.html?_r=1&oref=slogin
Miller, D. (1999). Principles of social justice. Cambridge, MA: Harvard University Press.
Miller, J. (January/February, 2007). Mind-boggling inequality: Enough to make even Adam Smith worry. In C. Sturr & R. Vasudevan, Current economic issues. Boston: Economic Affairs Bureau.
Saez, E. (October, 2007). Table A1: Top fractiles income shares (excluding capital gains) in the U.S., 1913-2005. Retrieved April 25, 2008 from Professor Emmanuel Saez' UC Berkley web-site: http://elsa.berkeley.edu/~saez/TabFig2005prel.xls
Wilson, R. A. (2002). Personal exemptions and individual income tax rates, 1913-2002. Retrieved April 25, 2008 from the Internal Revenue Service: http://www.irs.gov/pub/irs-soi/02inpetr.pdf
Price, L. (October 25, 2005). The boom that wasn't: The economy has little to show for $860 billion in tax cuts. Retrieved April 25, 2008 from the Economic Policy Institute: http://www.epi.org/briefingpapers/168/bp168.pdf
Price, L. & Ratner, D. (October 26, 2005). Economy pays price for Bush's tax cuts. Retrieved April 25, 2008 from the Economic Policy Institute: Economic Snapshots: http://www.epi.org/content.cfm/webfeatures_snapshots_20051026
U.S. Census Bureau. (January 10, 2008). Table 2. Educational Attainment of the Population 25 Years and Over, by Selected Characteristics: 2007. Retrieved April 25, 2008 from the Current Population Survey: http://www.census.gov/population/socdemo/education/cps2007/Table2.csv
U.S. Census Bureau. (a) (August 28, 2007). PINC-03. Educational Attainment--People 25 Years Old and Over, by Total Money Earnings in 2006, Work Experience in 2006 Age, Race, Hispanic Origin, and Sex. Retrieved April 25, 2008 from the Current Population Survey: http://pubdb3.census.gov/macro/032007/perinc/new03_010.htm
U.S. Department of Labor. (a) (December 18, 2007). Teachers - Postsecondary: Earnings. Retrieved April 25, 2008 from the Occupational Outlook Handbook: http://www.bls.gov/oco/ocos066.htm#earnings
U.S. Department of Labor. (b) (December 18, 2007). Lawyers: Earnings. Retrieved April 25, 2008 from the Occupational Outlook Handbook: http://www.bls.gov/oco/ocos053.htm#earnings
Yellen, J. (November 6, 2006). Speech to the Center for the Study of Democracy2006-2007 Economics of Governance LectureUniversity of California, Irvine. Retrieved April 25, 2008 from the Federal Reserve Bank of San Francisco: http://www.frbsf.org/news/speeches/2006/1106.html

Notes:

[1] See Tobin (1992) for an excellent critique of "supply-side" policy and Chait (2007) for a journalist covering economists' take on the Bush and Reagan tax cuts.

What is liberalism anyways?

noreply@blogger.com (B. S. E.) — Thu, 29 May 2008 20:33:00 +0000

Contemporary political discourse commonly takes place in terms of liberal vs. conservative. The former is used synonymous with "left" and the latter synonymous with the "right." From time to time we hear of libertarians who are often see as left on social and right on economic issues. Yet, while modern liberals are left of center, there are other distinct ideologies on the left: social democracy, democratic socialism and Marxist socialism. Equating modern liberals with democratic socialists, as some libertarians or conservatives do, is little more than an extravagant display of what is either ignorance or an over-zealous attempt to show once ideological opponents in a negative light.

So what is liberalism? Well there are two main kinds of liberalism: classical liberalism (think Friedrich Van Hayek, CATO Institute, etc...) and modern liberalism (what is simply called liberalism in the U.S.). Both classic and modern liberalism see the advancement of freedom as key to the perpetuation of the common good. Both see the advancement and protection of freedom as the proper role of the state. Both share the same philosophical roots. Yet, at the risk of over-simplifying excessively myself, the difference between the two lies in the definition of freedom. Modern liberals believe in positive freedom, i.e. freedom consists of the opportunity to actualize one's potential and reach one's goals. To perpetuate positive freedom, both first and second generation rights need to be provided universally. It is this commitment to positive freedom and its commitment to social justice that gives modern liberalism its egalitarian bent. Fellow modern liberal, Princeton sociologist and co-founder of the American Prospect Paul Starr:
"Liberalism wagers that a state... can be strong but constrained - strong because constrained... Rights to education and other requirements for human development and security aim to advance equal opportunity and personal dignity and to promote a creative and productive society. To guarantee those rights, liberals have supported a wider social and economic role for the state, counterbalanced by more robust guarantees of civil liberties and a wider social system of checks and balances anchored in an independent press and pluralistic society."

Interestingly, modern liberalism is not a dogmatic ideology, if one can even call it that. It is a highly pragmatic "ideology." It supports those policies, which are seen as the most effective in ensuring the universal provision of positive liberty and advancement of social justice. To determine whether or not government should intervene we, therefore, follow a rather technical appraoch.

Modern liberalism is undoubtedly a powerful ideology. After WWII it became the dominant ideology on economic matters. The Great depression, two world wars and the rise of fascism was directly linked to the laissez-faire policy of previous decades. As London School of Economics, economists John Weeks put it, "the thirty years that followed [WWI] brought a series of disasters to the developed world... Almost without exception, the leadership of the mainstream parties in the developed countries... concluded that these disasters resulted from instabilities inherit in market economies." This includes the Republican Party of the U.S. The GOP was home to a large and powerful progressive wing, includes the likes of Nelson Rockefeller, and followed a largely Keynesian-modern liberal approach to fiscal policy. Modern liberalism changed the face of the political-economy in all developed countries. While classic liberals managed to exploit stagflation and the oil crisis of the late 1970s to their advantage (in the U.S. pushing the GOP to the right and turning supply-side economics into a prominent school of thought), neither Reagan nor Thatcher managed to overturn much of the pervious modern liberal policy. Conservatives have managed to stop the welfare state from growing further (surprise, surprise - poverty stagnated too, and inequality has been on the rise), and have made access to certain programs more difficult but all developed countries remain committed to the general principles of the mixed social market economy.

There is, of course, a lot more to be said on the topic of modern liberalism, but my aim here was simply to sketch a short overview.

Bush's biggest nutjob

noreply@blogger.com (B. S. E.) — Thu, 29 May 2008 20:30:00 +0000

Steven Pinker, the famous Harvard psychology professor, has a new article out in the TNR on Bush's advisory panel on bioethics. The article makes an interesting argument on the concept of dignity being misused to condemn a technology that could ease the suffering of millions. While I can only recommend this article (The Stupidity of Dignity), it is Leon R. Kass, the advisor of bio ethics to President Bush who stole my attention. I commonly do not refer to people as nutjobs, but considering the remarks by this far-right, well, nut, I can't help myself. Here's a taste of Mr. Kass' insight into the human condition. While you read this, please remember that President Bush appointed this man as one of his advisors and put him in charge of putting together his council on bioethics. These words were written by an advisor Mr. Bush actually listens to:

Worst of all from this point of view are those more incvilized forms of eating, like licking an ice cream cone - a catlike activity that has been made acceptable in informal America but that still offends those who know eating in public is offensive... Eating on the street - even when understaken, say, because one is between appointments and has no other time to eat - displays [a] lack of self-control: It beckons enslavement to the belly... Lacking utensils for cutting and lifting to the mouth, he will often be seen using his teeth for tearing off chewable protions, just like an animal... This doglike feeding, if one must engage in it, ought ot be kept from public view, where, even if we feel no shame, others are compelled to witness our shameful behavior.

At this point, one may say harmless nonsense. Obviously no one is going to take Mr. Kass' calls for the banishment of public eating seriously. Yet, Mr. Kass has been influencial in cutting funding for medical research he considers to "violate human diginity" (Neither he nor any of the members of the panel have defined what they mean by "dignity"). According to Mr. Kass the desire for a long, healthy life is nothing more than "an expression of childlish and narcisistic wish incompatiable with devotion to posterity" - afterall, "would professional tennis players really enjoy playing 25 percent more games of tennis?" This man, through his attempt to force far-right beleifs on the American public has successfully delayed progress in medical research. Fortunately he has not gone unchallanged and some states, such as California, continue to fund stem-cell research, as does the private sector. Thanks to this nonsense, however, millions of American will suffer from brutal diseases, such as Alzheimers and cancer, or watch their loved ones suffer.

Government: the anti-dote for poverty?

noreply@blogger.com (B. S. E.) — Thu, 29 May 2008 20:28:00 +0000

To some extent, undoubtely. Government is not always the problem, more often than not it is the solution. Of course, these soundbites and reckless over-simplifcations are quite useless. Rather public policy should be based on a pragmatic, case by case apporach. The question here is, do taxes and tranfers acheive their goal of alleviating poverty. From the answer we can infer whether or not they are a) desirable and b) an expansion should be considered.

Kenworthy (1999) found a significant difference between the pre-transfer, pre-tax and post-transfer, post-tax absolute poverty rates in sixteen affluent democracies. To facilitate a cross national comparison, Kenworthy used data from the Luxembourg Income Survey (LIS) and an absolute poverty threshold set at 40% of U.S. median household income. She used purchasing power parity rates from the OECD for currency conversion. Income figures were also adjusted for household size, with the standard equalization scale of 0.5 for each additional household member, obtained from the OECD as well. While pre-transfer poverty is caused a multitude of factors, including public policy, economic growth, demographics, etc..., the difference between pre-tax/transfer and post-tax/transfer poverty is the result of government intervention. Kenworthy found that the welfare state reduces absolute poverty anywhere between 40% and 90%. Using decommodification,[1] cash transfers and social wage[2] as proxies of welfare state extensiveness, Kenworthy found a considerable correlation between welfare state extensiveness and the post-tax/transfer poverty rate. According to her calculations, "the coefficients for each of the three alternative social-welfare policy extensiveness measures are negative and statistically significant... [suggesting] that social-welfare policies do help to reduce poverty" (p. 1129; emphasis in original).

Kenworthy used an absolute poverty threshold to address the libertarian argument that the welfare state increases absolute poverty by stalling growth, despite its success in reducing relative poverty. Bradley, Huber, Moller, Nielsen and Stephens (2003) conducted a similar study, but used a relative poverty threshold set at 50% of median household income of each respective country. Income data was also obtained from the LIS and adjusted for household size and purchasing power parity, using standard measurements from the OECD. While poverty reduction was not as great regarding relative poverty as absolute poverty, the study still found the welfare state and effective tool for poverty relief. The mean poverty reduction was 49%, ranging from 12.1% in the U.S. to 78.8% in Belgium. Bradley et al. concluded that, "the more generous the welfare state, the greater is the extent of poverty reduction. In addition, long-term incumbency of left parties affects poverty reduction positively by giving the tax and transfer system a particularly redistributive profile" (p. 44).

By reducing poverty, the welfare state also reduces inequality. Research by both Kenworthy and Bradley et al. unambiguously suggest that it moves a great share, in many developed countries the majority, of those with low incomes higher up on the income strata. Much of the welfare state is financed by a progressive taxation system and thus mainly relies on contribution form affluent members of society. Even in the U.S., which has a tax burden significantly below the average for a developed country, the income tax burden is distributed progressively. In 2005, the bottom 53% of taxpayers paid 9.3% of all income taxes, while the top 0.91% of taxpayers, who paid the top marginal tax rate of 35%, paid 32.4% of all income taxes. The top marginal rate by itself generated more then twice as much revenue as any other marginal rate (Bryan & Mudry, 2006). Not all taxes, however, are as progressive as the federal income tax. When state, local and other taxes are included the top 1% paid roughly 21% of all taxes (Miller, 2007). Overall, the share of income garnered by the top 1% is decreased from 20% before taxes to 14% after taxes (Aron-Dine & Sherman, 2007).[3]

These numbers need to be read with care, however. They do not indicate that the rich are taxed sufficiently. For a household in the top 0.1% with an income of $1.6 million to feel the pinch of taxation as hard as someone making $35,000, it will need to be taxed at a considerably higher rate - thus inevitably shouldering a greater share of the tax burden. Furthermore, the poor in the U.S. pay virtually no income tax, while the working and middle classes are taxed lightly (See Alperovitz, 2004). Suppose a society with high inequality, such as the U.S., decided not to tax anyone but those making at least $1 million per year. Now suppose the rate at which the rich are taxed is 1%. True, the rich in this fictional society are paying 100% of all income tax. Yet, as their seven-figure incomes are being taxes at just 1%, the injustices and inefficiencies outlined in section two will not be alleviated. The rich in the U.S. pay a larger share of the tax income tax burden because they enjoy much higher incomes than the bottom 99% and the working and middle classes are taxed very low rates. As I described in section two, the top 1% are still pulling ahead of the bottom 99% even in terms of after-tax income (see figure 2) and the Bush tax cuts resulted in an inefficient allocation of resources by lower the tax burden levied on the rich. The one thing one may infer from these statistics is that even in the U.S., the welfare state is financed at least partially through progressive taxation, i.e. the poor are being lifted out of poverty with resources coming from high income households. In sum, the welfare state does reduce inequality and thus the injustice and inefficiency that accompany inequality.

Notes:

[1] Kenworthy uses the decommodification scale by Esping-Andersen (1990), which measures the extent to which an individual can sustain a decent standard of living when not working.
[2] In Kenworthy, "social wage" refers to "the percentage of former income that a median income worker will receive if she or he stops working" (p. 1126).
[3] it should be noted that 14% is still almost twice as large as the 7.5% of net income as the top 1% received in 1979.

Sources:

Alperovitz, G. (July/August, 2004). The coming era of wealth taxation. In C. Sturr & R. Vasudevan (Eds.), Current economic issues: progressive perspectives from dollars & sense (pp. 213-217). Boston: Economic Affairs Bureau.
Aron-Dine, A. & Sherman, A. (January 23, 2007). New CBO Data Show Income Inequality Continues to Widen: After-tax-income for Top 1 Percent Rose by $146,000 in 2004. Retrived April 25, 2008 from the Center on Budget Policy and Priorities: http://www.cbpp.org/1-23-07inc.htm
Bradley, D., Huber, E., Moller, S., Nielsen, F. & Stephens, J. D. (2003). Determinants of relative poverty in advanced capitalist democracies. American Sociological Review, 68(1), 22-51. Retrieved April 26, 2008 from JSTOR: http://www.jstor.org/stable/3088901
Bryan, J. & Mudry, K. (2006). Individual income tax rates and shares. Retrieved April 27, 2008 from the Internal Revenue Service: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=129270,00.html
Kenworthy, L. (1999). Do social-welfare policies reduce poverty? A cross-national assessment. Social Forces, 77(3), 1119-1139. Retrieved April 26, 2008 from JSTOR: http://www.jstor.org/stable/3005973
Miller, J. (January/February, 2007). Mind-boggling inequality: Enough to make even Adam Smith worry. In C. Sturr & R. Vasudevan, Current economic issues: Progressive perspectives from Dollars & Sense. Boston: Economic Affairs Bureau.

How to fix a recession

noreply@blogger.com (B. S. E.) — Sat, 10 May 2008 03:25:00 +0000

In a recession the government should reduce spending to avoid a costly deficit, whereas during boom times it should increase investment in the public sector to boost growth, efficiency and perpetuate the common good further. Right? Wrong! You just got a 0 on this quiz.
It is during a recession that government increases spending and during boom times that the deficit incurred during the recession is paid of. In other words, when private sector spending goes down and economy slows, government increases spending. This is the time to build new colleges and universities, k-12 schools, highways, police stations, dispatch centers, parks, etc... Won't this create a deficit? Yes, it most likely will, as tax revenues decline during a recession. But, as any economist knows, not all deficits are created equal. First, investment in schools, infrastructure and the like is exactly that: an investment. Investments have returns, so does social sector spending. Part of the cost of a deficit derived from making these investments will be off-set through their returns, i.e. a healthier, more educated labor force, fewer traffic jams, less damage to private property, etc... Second, spending should slow or kept level during boom years, when tax revenues increase. It is then that the state repays the deficit incurred during the bust cycle.
But why not just make these investments during the boom years and avoid a deficit altogether? Because you won't to lessen severity of the bust cycle. When government spends, there is what economists call a "multiplier effect." For example if the state of California spends $100 billion to build new highway, its spending causes a ripple effect through the economy. Contractors are hired, they have more business, more income and demand more goods. Thus, the real effect on the economy may be upward of say, $300 billion. When the government spends, be it by hiring teachers, contractors to build public projects, etc... Jobs and income are created and aggregate demand for goods increases. When demand increases, supply will follow. This in turn, creates more jobs and further increases demand, and voila: we're out of the bust cycle. That is not to mention the long-term benefits we stand to reap from a better infrastructure and public institutions, i.e. a healthier, more educated population, etc...

With the stimulus package, the government followed the above logic (though more money needs to be allocated to public sector expansion). Putting money in the hands of consumers so they may increase aggregate demand (it is important to note that those checks are send only to households below a certain income threshold. Why? Because the rich spend a lower percentage of their income, as they already have enough to satisfy their materialistic desires. Thus, $500 in the hands of a poor person is more likely to be injected into the economy). Increasing investment in the public sector, however, may also yield more long-term benefits and should be added to our anti-recession agenda. What the government should not do is reduce spending. Doing so, will worsen the recession. The process I described above will take place in reverse: less public sector employment, less income, less aggregate demand... you get the idea. Now, is the time to invest in the public sector; now is the time to build those new highways, colleges and schools; now is the time to hire new civil servants.

Why markets fail

noreply@blogger.com (B. S. E.) — Sat, 10 May 2008 03:23:00 +0000

Why not let the market provide second generation rights and an equitable distribution of resources? Because it cannot. There is little doubt that the market is the greatest tool humanity has found for the allocation of resources to date. Introductory economics textbooks tell students how efficiently the market can muster the complex task of adjusting the allocation of resources without any central management. Yet, these textbooks also tell students that "there is no question that government must be involved" (Case & Fair, 2007, p. 350). The market only distributes goods efficiently under certain conditions. As Stiglitz noted in his 1998 Lecture on Economics in Government,

"Today, many of us look at the fundamental theorem not as a description of the world, but as an explication of the conditions under which a market equilibrium will be Pareto efficient... The importance of some of the more explicit assumptions-like the lack of externalities and the completeness of markets-has long been known... In particular, it has been shown that in the presence of imperfect information or incomplete markets, the economy will not be Pareto efficient; in other words, there will always be some intervention by which the government can make everyone better off" (pp. 3-4).

Barr (2004) identifies the conditions under which markets function efficiently as follows (pp. 73-81):

Perfect information. Consumers and suppliers must be well-informed about the nature of the product and prices. Information must be easily accessible and comprehensible. Furthermore, the time horizon must not be too long, as individuals need to have adequate information about the future in order to make efficient decisions about the future.

Perfect competition in product, factor and capital markets. Individuals must be price-takers with equal power.

Complete markets. Markets that "would provide all the goods and services for which individuals are prepared to pay a price that covers their production cost." Missing markets arise when the market does not provide a certain good or service. For example the market cannot insure against the risk of inflation.

Absence of market failures, which result from externalities, increasing returns to scale which cause firms to exit an industry and leave a monopoly in place, and the nature of public goods. "Pure public goods exhibit three technical characteristics, non-rivalness in consumption, non-excludability, and non-rejectablity, which together imply that the market is likely to produce inefficiently."

In the face of inadequate information, public goods, externalities, increasing returns to scale, missing markets and imperfect competition, government intervention is warranted on the grounds of efficiency. In some cases, such intervention will be small, in others public production of a given good may be warranted (Barr, 2004, p. 72). Even in the case of food - a privately produced and funded good, the government must impose labeling laws to alleviate the problem of inadequate information, enforce anti-trust policies and grant income transfers to the poor, so no one is denied their right to adequate nutrition.

References:
Barr, N. (2004). Economics of the welfare state. New York: Oxford University Press (USA).
Stiglitz, J. (1998). Distinguished lecture on economics in government: The private uses of public interests: Incentives and institutions. The Journal of Economic Perspectives, 12(2), 3-22.
Joseph Stiglitz is a Nobel Prize Laureate and professor of economics at Columbia University. Nicholas Barr is professor of public economics at the London School of Economics.

Does being black still mean being poor?

noreply@blogger.com (B. S. E.) — Sat, 10 May 2008 03:22:00 +0000

Unfortunately, yes, it still does to a considerable extent.

While the welfare state lessens overall poverty, pockets of poverty still exist and are in need of further attention from the state. African Americans, especially African American women, are a good example. In 2006, roughly half of all African American children, 49.7%, and 44.5% of African American single mothers lived below the official poverty line set by the U.S. government at three times what is needed to sustain a nutritious diet. By comparison the overall national poverty rate was clocked at 11.7% (U.S. Census Bureau, 2007cd). One of the reasons for the high incidence of poverty among members of this group was lacking labor force participation. A plurality, 44.4%, of poor African Americans lived in households whose householder did not participate in the labor force. The most common reasons for not being able to work were illness of disability (34.9%), school (24.4%), "home or family reasons" (18.6), being retired (18.9%), and 6.2% were unable to find work. African American women, mirror their overall ethnic community in this respect (U.S. Census Bureau, 2007e). Moller (2002) found that the U.S. welfare state is binary: individuals with a considerable work history have access to better service than those who do not. Furthermore, the U.S. lacks a universal federal minimum income, as found in all other developed countries. African American women, especially single mothers, typically qualify only for less generous benefits than white women and other demographics, as they may lack sufficient work experience and many live in those states with the least generous benefits. Moller concludes that this most vulnerable of demographics is still "denied the opportunity and support to maintain economic stability" (p. 478). The research by Moller and U.S. Census Bureau data suggest that many African American women are a) dependent on the welfare state for an opportunity to lead productive and b) require great welfare state assistance. Not surprisingly, Abramovitz (2001) found that African American activists, feminists in particular, have made state intervention for the sake of "economic justice" one of their primary objectives.

Sources:
Moller, S. (2002). Supporting poor single mothers: Gender and race in the U.S. welfare state. Gender and Society, 16(4), 465-484.
Abramovitz, M. (2001). Learning from the History of Poor and Working-Class Women's Activism. Annals of the American Academy of Political and Social Science, 577, pp. 118-113
Census Bureau. (d) (August 28, 2007). POV03: People in Families with Related Children Under 18 by Family Structure, Age, and Sex, Iterated by Income-to-Poverty Ratio and Race: 2006 Below 100% of Poverty - All Races. Retrieved April 27, 2008 from the Current Population Survey: http://pubdb3.census.gov/macro/032007/pov/new03_100_01.htm
U.S. Census Bureau. (e) (August 28, 2007). POV24: Reason For Not Working or Reason For Spending Time Out of The Labor Force -- Poverty Status of People Who Did Not Work or Who Spent Time Out of the Labor Force: 2006 Below 100% of poverty -- Black Alone. Retrieved April 27, 2008 from the Current Population Survey: http://pubdb3.census.gov/macro/032007/pov/new24_100_06.htm
The above is from the rough-rough draft of a paper I am working on.

What is social justice?

noreply@blogger.com (B. S. E.) — Sat, 10 May 2008 03:21:00 +0000

American philosopher John Rawls (1972) stipulated that resources should be distributed in such a manner as to maximize benefit for the least advantaged members of society. Any inequality can only be justified if they are beneficial to the weakest members of society. A perhaps more familiar conception of social justice articulated by David Miller. According to Miller, social justice consists of three components: rights, deserts and needs. The first consists of largely of negative first-generation rights, such as equality before the law and freedom of speech. The second consists of "the recognition of each person's action and qualities," which implies proportional compensation for one's contributions to society. Any judgment on what constitutes due recognition for a given action or quality, will inevitably be made relative to other members of society (e.g. it is not possible to determine whether or not my income constitutes a just reward without comparing myself to others). The third component of justice consists of "the prerequisites for fulfilling individual plans in life." This component underlines the close, complex relationship between social justice and positive freedom. The former cannot exist without the latter, nor can the latter exist without the former. Different ideologies emphasize different elements of social justice. Libertarians emphasize the deserts element, while democratic socialists emphasize the needs elements. I adopt the modern liberal approach of attempting emphasize all three as equally as possible, while, similar to democratic socialists, assigning the needs elements a slight priority.