To Get Rich is Glorious

Grunwald's latest

2013-05-13T20:50:00.000-04:00

Time magazine's Michael Grunwald -- last spotted around these parts banging the drums in favor of ~~taxpayer-funded handouts to corporations~~ green energy subsidies -- is back at it, producing a column so bad it must be read to be believed. Starting with the fourth paragraph:

Fisker [Automotive] probably won’t [change the world], but that doesn’t mean it was a dumb bet all along. An exhaustive Republican investigation found no wrongdoing connected to the Solyndra loan, and there’s no reason to think the Fisker loan was shady either. Like Solyndra, it was once considered a game-changing example of American innovation. Like Solyndra, Fisker raised a billion dollars from private investors. But like Solyndra, Fisker couldn’t cut it in the marketplace. The $100,000 Karma broke down on the Consumer Reports test track. Its display panel is a mess; I couldn’t get the radio to work. Fisker had awful production problems and ultimately sold only about 2,000 Karmas before suspending operations. Its second model, which was supposed to revive a shuttered GM factory in Delaware, was never built. The Energy Department cut Fisker off after it drew down just $192 million of a half-billion-dollar loan.

Shorter version: yes, Fisker made a terrible product that taxpayers helped pay for, but hey, it *only* lost $192 million and it's not like anything criminal happened. Is it even possible to set the bar any lower?

Next paragraph:

So it goes. Companies that receive tax breaks and subsidies fail all the time. Ordinary Americans who get tax deductions and subsidies fail too.

Which is a great argument for the adoption of a flat tax and end to government subsidies for individuals. But apparently in Grunwald's world, one bad policy choice justifies another.

Success is not guaranteed in a capitalist economy. The loan program provided a jump start, not a free ride. But Solyndra’s failure has overshadowed a spectacular boom in the -solar industry, which has grown more than tenfold since Obama took office. Fisker’s failure could overshadow similarly impressive growth in plug-in electrics; there were almost none on U.S. roads before 2008, and now there are more than 100,000.

In other words, the government subsidized something and got more of it. This is econ 101 -- what else should we have expected to occur? Why does Grunwald find this remarkable or noteworthy?

During a presidential debate, Mitt Romney memorably lumped in Tesla Motors with Fisker as an Obama-supported “loser,” but Tesla just had its first profitable quarter and is on track to pay back its federal loan five years early. Its Model S has won the big car-of-the-year awards and received the highest Consumer Reports score of any car since 2007; its reviewers have sounded like teenage boys reviewing porn. So who’s the loser?

Tesla Motors, as has already been pointed out on this blog, had already secured over $200 million in private sector financing before the Department of Energy handed it a dollar, and turned its first monthly profit only weeks after the federal loan was approved. Does Grunwald think that a company the private sector had already invested tens of millions of dollars in, and which was showing signs of profitability, would have failed to secure additional financing absent taxpayer intervention?

Sixth paragraph:

The larger point is that overall, as an independent review by Republican Senator John McCain’s finance chairman confirmed, the Energy Department’s $40 billion loan portfolio is performing well. It’s also transforming the energy landscape with America’s largest wind farm, a half-dozen of the world’s largest solar plants, cellulosic biofuel refineries and much more.

Again, why is a highly-subsidized industry's expansion evidence of its success? And what does "performing well" mean (especially considering that Grunwald views the loss of nearly $200 million by Fisker Automotive as no big deal)?

Obama didn’t support one company or one technology; he supported all kinds of plausible alternatives to fossil fuels. He didn’t pick winners and losers; he picked the game of cleaner energy.

What a nonsensical insult to the intelligence of his readers. Unless Obama provided equal or proportional funding to every single company engaged in alternative energy production, he was picking winners and losers. The second sentence, meanwhile, is a self-contradiction. If Obama was picking clean energy over other forms of energy then he was picking winners by definition. The mental gymnastics that Grunwald has to perform to justify Obama's green energy agenda are amazing to behold.

And we’re winning. The U.S. has doubled its production of renewable power.

For the third time Grunwald cites the growth of a subsidized industry as evidence of its success. Get this man an econ book.

Our carbon emissions are at their lowest levels since the early 1990s.

Nice trick: Grunwald slips in a reference to reduced carbon emissions in an effort to imply a causal relationship between it and the increased deployment of clean energy without actually proving one. A front-page Wall Street Journal story from mid-April helps provide a more accurate picture:

U.S. carbon-dioxide emissions have fallen dramatically in recent years, in large part because the country is making more electricity with natural gas instead of coal.

Energy-related emissions of carbon dioxide, the greenhouse gas that is widely believed to contribute to global warming, have fallen 12% between 2005 and 2012 and are at their lowest level since 1994, according to a recent estimate by the Energy Information Administration, the statistical arm of the U.S. Energy Department.

While other factors, including a sluggish U.S. economy and increasing energy efficiency, have contributed to the decline in carbon emissions from factories, automobiles and power plants, many experts believe the switch from coal to natural gas for electricity generation has been the biggest factor.

In other words, the chief factor behind the reduction in carbon emissions is conventional energy -- you know, the sector President Obama didn't bet on. Either Grunwald is completely oblivious to this fact -- hard to believe given how closely he appears to follow energy issues -- or he's being dishonest.

And after decades when the U.S. invented products like solar panels and lithium–ion batteries only to see them manufactured and deployed abroad, we’re finally making green stuff at home. For example, not only are we generating twice as much wind power, we’re making twice as many of the components for U.S. wind turbines.

Wouldn't it be far better if US labor was engaged in industries which make economic sense instead of those being subsidized by government largesse?

The fact remains this: politicians and bureaucrats are gifted with no special insights into the future of industrial developments or what the next big thing might be. Indeed, one suspects that for at least some of them, the sum total of their green energy knowledge consists of half-remembered Tom Friedman columns. From a moral perspective, it's also almost invariably bad to mix politicians with businessmen, and reprehensible to redistribute money from taxpayers to private corporations.

It's amazing how far our friends on the left have come from the days of criticizing corporate welfare to openly celebrating it.

Inequality update

2013-05-07T21:10:00.000-04:00

Scott Winship of the Brookings Institution has a recent paper out on inequality, in which he scrutinizes how common complaints/accusations about income inequality comport with the facts. Some highlights:

Recent work by Harvard's Christopher Jencks (with Dan Andrews and Andrew Leigh) shows that, over the course of the 20th century, within the United States and across developed countries, there was no relationship between changes in inequality and economic growth.10 In fact, between 1960 and 2000, rising inequality coincided with higher growth across these countries. In forthcoming work, University of Arizona sociologist Lane Kenworthy also finds that, since 1979, higher growth in the share of income held by the top 1% of earners has been associated with stronger economic growth across several countries.

The fact is that the median family today has nearly twice the purchasing power of its counterpart in 1960. The basic well-being of today's family is significantly better than that of a family living in the supposed golden age.

The experience of the recent recession suggests that people lower on the income distribution do not benefit when the wealthiest Americans earn less: Between 2007 and 2009, when the share of total U.S. pre-tax income received by the top 1% of earners fell from 18.7% to 13.4% (erasing the gains of the previous five years), median income fell by 5%.16 Cato Institute scholar Alan Reynolds notes that the poverty rate tends to fall when the share of income received by the top 1% rises (and vice versa).

For those with a deep interest in the subject, the entire paper is worth reading in full.

Don Boudreaux, meanwhile, examines the income inequality from a philosophical angle and absolutely nails it:

I care – very deeply – whether the process for pursuing one’s life’s goals is fair or not. I want everyone to have as fair a chance in the economy as is humanly possible. I despise special privileges that stack the deck either in favor of Jones or against Smith. (We can have a debate about what the details of “fair process” and “special privileges” look like, but this post is not the place for such a debate.) But I do not care about differences in monetary income or wealth as such.

If (by whatever criteria) the process is fair, then the outcomes are fair. If the process is not fair, then at least some outcomes are lamentable. If those lamentable outcomes involve too little income for Smith and too much for Jones, then this income difference is evidence of the unfair or skewed or crony-fied process. But the object of my concern in such situations isn’t the income difference as such; rather, it’s the unfair or skewed or crony-fied process that gave rise to it.

I’m all for correcting the process, and would be no less in favor of correcting the process if I were told that such a correction will increase income inequality as I would be in favor of correcting the process if I were told that such a correction will decrease income inequality. Again, income differences can at best serve as evidence of a problem; the differences themselves – the income inequalities themselves – are not the core problem.

Read the whole post, as well as this great follow-up that addresses a common critique of his position.

Welfare and technology

2013-05-07T07:21:00.001-04:00

New York Times business and economics columnist Eduardo Porter had a pretty good piece last week on the benefits of technology and our struggles to measure them. Here's the gist:

Last year, Robert J. Gordon of Northwestern University proposed that the I.T. revolution has pretty much exhausted its promise. He asked, provocatively: “Is U.S. economic growth over?” And he forecast stagnating living standards for the vast majority of Americans for decades to come.

Government statistics lend support to his skepticism: Value added by the information technology and communications industries — mostly hardware and software — has remained stuck at around 4 percent of the nation’s economic output for the last quarter century.

But these statistics do not tell the whole story. Because they miss much of what technology does for people’s well-being.

News organizations that take advantage of computers to let go of journalists, secretaries and research assistants will show up in the economic statistics as more productive, making more with less. But statisticians have no way to value more thorough, useful, fact-dense articles.

What’s more, gross domestic product only values the goods and services people pay for. It does not capture the value to consumers of economic improvements that are given away free. And until recently this is what news media organizations like The New York Times were doing online.

The Commerce Department is in the process of revising the way it measures G.D.P. to take better account of the contributions of investment in research and development and artistic creation. But even though the revisions to be announced this summer are expected to make the economy look bigger, they are not devised to capture the value that Americans get from digital technologies.

“G.D.P. is not a measure of how much value is produced for consumers,” said Erik Brynjolfsson of the Massachusetts Institute of Technology. “Everybody should recognize that G.D.P. is not a welfare metric.”

G.D.P. misses what Americans gain from sharing information on Facebook or finding information on Google or Wikipedia. It misses how dating sites reduce the cost and increase the odds of finding a mate. It misses the time saved by drivers who use Google Maps and the time gained by consumers from shopping online. Measured in money — what it contributes to G.D.P. — the recording industry is shrinking. Yet never before have Americans had access to so much music.

For all of the hand-wringing one regularly encounters regarding the current state of affairs, it's useful to recall the impact of technology advancements and how much they have improved our lives. While Porter cites a number of examples of the positive impact of technology, such as matchmaking and online shopping, perhaps another worth considering is that of planning a trip versus 15-20 years ago (no small thing -- remember that over one-third of Americans own a passport).

Twenty years ago -- or even less -- planning a trip or vacation typically involved meeting with a travel agent or purchasing travel guides in order to help with decisions such as where to travel, what accommodations to use and how to get there. Now, one can simply search online for hotels, flights and rental cars, replacing endless phone calls (international calls for hotel bookings abroad) with a few keystrokes.

It's not just time savings either, with the internet also producing huge qualitative improvements. Beyond finding prices and availability online, websites such as Tripadvisor also provide pictures and reviews from actual customers. Visitors can learn online what is worth seeing and doing, and what's a waste of time or tourist trap. Rather than getting one opinion from a guide book, aspiring travelers can easily get dozens or more of first-hand reviews. In addition to the process becoming vastly easier, customers now have greater certainty than ever of what they are getting for their money. Other useful information is also easily obtained, such as local weather (almost regardless of how obscure the destination), local mass transit schedules and currency exchange rates.

The advantages don't stop once the journey has begun. Once on board the plane, long-flights almost guarantee access to personal video systems with libraries of movies to choose from -- as opposed to one or two movies screened for the entire plane via projectors or drop down monitors -- and other entertainment options such as TV shows and games. Some flights even offer in-flight WiFi. Instead of traveling with sheafs of paper containing numerous confirmation numbers, phone numbers and other contact information, maps, paper airline tickets, etc., everything can simply be loaded onto a smart phone (a development that is saving money for the airlines).

If using a rental car, a GPS device almost guarantees one never gets lost, ensuring less time (and gas) wasted and more time enjoying the trip. ATMs replace the need for carrying around large amounts of foreign currency when traveling abroad in developed countries (and even many lesser developed ones). Digital cameras help people get the pictures they want, and eliminate the guessing game of shooting with film (also saving the cost of photo development) and producing better memories (which are then easily shared in short order online with friends and family rather than mailed or placed in a photo album).

The point to all of this is not simply to highlight how much technology has improved our lives, but also -- as Porter notes -- how difficult all of this is to capture in the economic data. Purely from the perspective of economic activity as measured by money exchanged, perhaps not a great deal has changed from vacations 20 years ago: people still have to pay for rental cars, airline seats, hotel rooms (although probably less than before) and other items such as cameras (or smartphones) to capture the memories.

But what about the qualitative changes such as reduced time being lost or making phone calls for hotel and airline reservations? What about the satisfaction from getting exactly what you're looking for in a hotel room, with no surprises? Or the happiness generated from the hundreds or even thousands of photographs and video taken with a run-of-the-mill digital camera? How is this measured, and how much is it worth?

Even when looking at traditional economic measurements it is clear that most Americans are living better than ever. As the Pew Charitable Trusts noted in a report last year, 84 percent of Americans have higher family incomes than their parents had at the same age and 93 percent of Americans whose parents were in the bottom fifth of the income ladder as well as 88 percent of those whose parents were in the middle quintile exceed their parents’ family income as adults. What's truly astonishing, however, is that -- given both the time savings Porter highlights as well as qualitative improvements due to technology that are less easy to measure -- such data almost certainly understates how well the average American is doing.

It's an amazing world, and we're lucky to be living in it.

How protectionism hurts Hawaii

2013-05-02T20:09:00.002-04:00

Very few people probably know what the Jones Act is, but it's an absolute scandal. One of the most economically self-destructive laws on the books, and it's repeal is long overdue. Why, especially at a time of continued economic sluggishness, is no one talking about this?

Government's electric car driving record

2013-05-02T19:55:00.002-04:00

Writing at The American Prospect, Paul Waldman argues that "on the whole the government has a good—and necessary—track record on electric cars." Sifting through the piece, the sum total of the evidence presented to support that claim appears to consist of the following two passages:

So did the [Department of Energy] drop the ball? They certainly kept a close eye on [electric car maker] Fisker. While they originally agreed to provide the company $529 million in loans, they cut off disbursements after Fisker failed to meet some of the goals of the original loan agreement. As a result, Fisker only received $192 million, less than half the agreed-upon amount, before DoE cut off payments nearly two years ago (they've recouped $21 million of the $192 million, but there's no telling how much more the government will be able to get back).

On the other hand, along with some high-profile failures the federal government has helped produce some notable successes. Tesla, another recipient of ATVM loans, is now making profits, has seen its stock rise to record levels. The company recently announced it will be paying back its DoE loan five years ahead of schedule.

In other words, Waldman thinks the government has a good record on electric cars because the Feds only lost $171 million of taxpayer money on Fisker rather than the entire $529 million it agreed to loan the company, and Tesla seems to be doing alright. The first point seems to be a classic case of setting the bar for success rather low, while the second one has Waldman bragging about the provision of taxpayer money to a successful private company which makes products for rich people (the Roadster's base price is over $100,000 while the Model S starts at $62,400 *after* a $7,500 federal tax credit). Once upon a time our friends on the left used to deride such government handouts as corporate welfare, while now it's celebrated.

But did Tesla even need such federal funding to get off the ground? As wikipedia describes the company's financing:

Musk's Series A round [of financing] included Compass Technology Partners and SDL Ventures, as well as many private investors. Musk later led Tesla Motors' Series B, US$13 million, investment round which added Valor Equity Partners to the funding team. Musk co-led the third, US$40 million round in May 2006 along with Technology Partners. Tesla's third round included investment from prominent entrepreneurs including Google co-founders Sergey Brin & Larry Page, former eBay President Jeff Skoll, Hyatt heir Nick Pritzker and added the VC firms Draper Fisher Jurvetson, Capricorn Management and The Bay Area Equity Fund managed by JPMorgan Chase. The fourth round in May 2007 added another US$45 million and brought the total investments to over US$105 million through private financing.

In December 2007, Ze'ev Drori became the CEO and President of Tesla Motors. In January 2008, Tesla Motors fired several key personnel who had been involved from the inception after a performance review by the new CEO. According to Musk, Tesla was forced to reduce the company workforce by about 10 percent to lower its burn rate, which was out of control in 2007.

The fifth round in February 2008 added another US$40 million. Musk had contributed US$70 million of his own money to the company by this time. In October 2008, Musk succeeded Ze'ev Drori as CEO. Drori became Vice Chairman. He left the company in December. By January 2009, Tesla had raised US$187 million and delivered 147 cars.

On May 19, 2009, Germany's Daimler AG, maker of Mercedes, acquired an equity stake of less than 10 percent of Tesla for a reported US$50 million. In July 2009, Daimler announced that Abu Dhabi's Aabar Investments bought 40 percent of Daimler's interest in Tesla.

In June 2009 Tesla was approved to receive US$465 million in interest-bearing loans from the United States Department of Energy. The funding, part of an US $8 billion program for advanced vehicle technologies (Advanced Technology Vehicles Manufacturing Loan Program), supports engineering and production of the Model S sedan, as well as the development of powertrain technology that Tesla plans to sell to other automakers. The low-interest loans are not related to the "bailout" funds that GM and Chrysler have received, nor are they related to the 2009 economic stimulus package. The Department of Energy loan program was created in 2007 during the George Bush administration in order to get more fuel-efficient vehicle options to U.S. consumers and to decrease the country's dependence on foreign oil.

The company announced in early August 2009 that it had achieved overall corporate profitability for the month of July 2009.

This is most certainly not an example of a company with a good idea that private financiers ignored and which was only able to prosper after securing backing from the federal government. Before the federal government even lent Tesla a dime, it had already secured five rounds of financing from the likes of Daimler, JPMorgan Chase, the Google co-founders and various venture capital firms. Then, only weeks after the DoE approved its loan for Tesla, the company announced it had turned a profit. It's not difficult to conclude that the company would have done just fine absent any government intervention.

This, of course, nicely captures the entire problem with government funding of private ventures: either the government ends up subsidizing failure or it gives money to a venture that probably would have succeeded anyway. Remember, the entire logic for giving public money to privately-owned companies rests on the premise that government is better suited to identifying successful ventures than venture capital firms and other private sector actors looking to make a buck. If one doesn't believe this, then the government is either wasting money or is providing superflous financing.

Problems with government funding are further underscored by this admission from Waldman:

In fact, some have complained that the DoE has been too strict in giving out loans under the [Advanced Technology Vehicles Manufacturing Loan Program -- ATVM]. A cumbersome application process and Department oversight has likely discouraged companies from applying. That may be why they haven't approved a new loan since 2011, and according to the Government Accountability Office, the program has $16.6 billion in loan authority that has never been used, out of the $25 billion Congress initially gave it.

Why, it's almost as if government is pretty poorly suited to the venture capital business or something!

Meanwhile, the notion that the government has a "good" record on electric cars is only half of Waldman's argument, as he also argues that public funding is "necessary." He fleshes out that in the following paragraph:

The point of the ATVM was that while broad adoption of electric vehicles could have wide-reaching benefits to the environment and national security, at this stage of their development there are some real challenges inhibiting them, like the cost of existing batteries and the lack of a charging infrastructure spread throughout the country. Once these challenges are overcome, government help won't be necessary anymore.

Fine, except that doesn't justify government funding for private corporations at all. All government has to do is identify the problem -- in this case environmental degradation and national security -- and then impose a tax equivalent to the costs imposed on whatever is responsible for the problems. With proper pricing in place, the market rather than government is then positioned to identify possible solutions (a much more difficult exercise than identifying problems).

Lastly, towards the column's conclusion Waldman offers up what is perhaps his most ridiculous piece of logic:

Finally, there's the argument that conservatives always make when it comes to federal investment in green technology: "Government shouldn't pick winners and losers." It has a certain simplistic appeal, were it not for the fact that government at all levels picks winners and losers all the time. Every time a state or local government offers a company favorable tax treatment to get them to build a factory in its borders, they're picking winners.

When General Electric's army of lobbyists works with pliant members of Congress to ensure that the corporation ends up paying virtually nothing in taxes, the government has picked winners and losers. When the Defense Department decides to buy its next trillion-dollar fighter jet from Lockheed Martin and not Boeing, it picks a winner and a loser.

Got that? Essentially, because government distorts the economy all the time, what's the big deal about one more distortion? Apparently multiple wrongs really do make a right. What appears to have completely escaped Waldman is that he just made a great argument for smaller government, given his admission that by its very nature it is constantly picking winners and losers, thus tilting the economic playing field.

While Waldman attempts to make grand arguments which justify the dispensation of corporate welfare by government, perhaps the real reason why electric car subsidies is such catnip to the left is simply that spending other people's money and bending the economy to one's will -- basically, wielding raw power -- is a lot of fun.

Apples and oranges

2013-04-30T20:33:00.001-04:00

Writing a puff piece in The New Republic about a woman named Susan Crawford, whose apparent claim to fame is a strong belief the telecom industry suffers from insufficient government intervention, John Judis offers this absurd passage:

Last year, Americans paid Comcast a monthly average of $153 for television, telephone, and Internet. According to a New America Foundation study, Parisians paid as little as $34.47 a month for the same bundled services, with Internet speeds five to 20 times faster than Comcast.

A basic principle of social science is that, when comparing two things, to make sure they are the same or incredibly similar (perfect comparisons are often difficult or elusive). In common parlance, this is know as comparing "apples to apples" rather than apples to oranges. Judis, however, manages to offer up at least three oranges in those two sentences.

Judis's first mistake is to compare the costs of citizens of an entire country to those of a densely-populated city (indeed, Paris looks to be the most densely-populated large city in the developed world), which has far different economics for internet deployment -- wiring a city is much more cost-effective and efficient -- than more rural/less densely populated areas. Judis then compounds his error by comparing only users of one service to an entire city, where presumably more than one service provider exists. Why Comcast and not Verizon or RCN (both of which, in addition to Comcast, offer service in Washington DC)?

More egregiously, Judis compares the *average cost* of Comcast users to the rock bottom cost in Paris, noting some that pay "as little as" $34.47 while saying nothing about averages. On the Bolt Bus from DC to New York, for example, riders can pay *as little as* $1 for a ticket, although the *average cost* is significantly higher.

Coincidentally, just as Judis bemoans the slow internet speeds Americans must endure compared to Parisians, RealClearTechnology recently released a ranking of the top ten countries by average internet speed which placed the US #8. France, meanwhile, does not appear on the list. Akamai, which provided the data for the ranking, says that average internet speeds in the US are 7,611 kilobytes per second, while France clocks in at 4,804 kbps.

While such mistakes might be understandable coming from a fresh college graduate, Judis is a senior editor at TNR and contributing editor to The American Prospect, and should absolutely know better. Then again, how much can one expect from a guy who founded a publication called Socialist Revolution?

Link round-up

2013-04-23T21:37:00.001-04:00

Caught back up on my reading in recent days after a few weeks off, here are some items that caught my eye:

Andrew Sullivan remembers Margaret Thatcher, while Megan McArdle writes about her impact on the UK economy. Here's my favorite YouTube clip of the former PM:

Speaking of Thatcher, watching coverage of her death on the BBC while out of the country was interesting. She was invariably described as "controversial" and someone who sharply divided the country with both strong supporters and detractors, yet news profiles examining her impact seemed to consist entirely of former coal workers in Sheffield.

So close to April Fools Day and yet not a joke: only short years after the housing bubble the Obama administration is pushing banks to make loans to people with weaker credit.

Both Matt Yglesias and Gene Marks says that people should stop complaining so much about airlines. Particularly agree with Yglesias's statement that "luggage fees are great," which only the economically ignorant should oppose. That said, some airports are rather dreary and TSA is typically an absurd hassle, but neither is the fault of the people you purchased the airline ticket from.

Here's an impressive short video showing how potato chips get made.

Who likes the federal income tax system? Democrats, and no one else. A Reuters poll, meanwhile, found "Democrats with a more favorable opinion than Republicans of the federal government, at 41 percent to 13 percent."

In India, Devi Shetty thinks he can get the cost of heart surgery down to $800. The Wall Street Journal has previously profiled him as the Henry Ford of heart surgery.

"Believe it or not, infrastructure has improved significantly over the last two decades."

Heckuva quote from the French president, and it seems that some lower-level politicians in the country are catching on regarding the burden of rules and regulations.

Tesla Motors might be good for something other than suckling from government after all.

Regulation, taxis -- you know the drill.

Peter Suderman summarizes the state of play on Obamacare in a link-filled post, while Greg Mankiw educates HHS Secretary Kathleen Sebelius as to the purpose of insurance.

Good point: "Capitalism is not a 'system.' It is an un-system."

Fighting with Portland government over a tree makes one guy consider that most radical of steps: becoming a Libertarian.

G'day

2013-03-30T17:33:00.000-04:00

If all goes according to plan I should have just touched down in Sydney. While blogging will be even lighter than usual for the next two weeks or so, take a few minutes to watch this fantastic video from this Australian about the cost of government. Great stuff.

Is capitalism moral?

2013-03-19T20:25:00.001-04:00

Writing in Sunday's Washington Post, Steven Pearlstein -- no doubt a familiar figure to longtime readers of this blog -- poses the question of whether capitalism is moral. While he never quite gets around to directly answering his own query, perhaps this John Mackey quote should be considered in attempting to resolve matters:

The beautiful thing about capitalism is that it’s ultimately based on voluntary exchange for mutual benefit. Take a business like Whole Foods Market, for example: we create value for our customers through the goods and services we provide for them. They don’t have to trade with us; they do it because they want to, because they think it’s in their interest to do so. So we’re creating value for them. We create value for the people who work for us: our team members. None of them are slaves. They are all voluntarily working because they feel like it’s a job they want to do; the pay is satisfactory; they derive many benefits from working at Whole Foods, psychic as well as monetary. So we’re creating value for them.

Exactly. Capitalism is moral because it is a system based on free will and voluntary transactions rather than coercion. The same, it must be noted, cannot be said of government. Contrary to Sen. Harry Reid's assertion, surrendering one's wealth to the state in the form of taxes, for example, is not a voluntary exchange. Those who refuse to pay tax or comply with regulations and laws imposed by government face very real sanctions such as fines and prison time. Given this reality, perhaps a more relevant question is not the morality of capitalism, but government.

While the column is far too lengthy to go through point by point, there are several statements and assertions deserving of greater scrutiny. In making the argument for capitalism's dubious morality, Pearlstein offers up the following:

More recently, we’ve seen another side of free markets: stagnant incomes, gaping inequality, a string of crippling financial crises and 20-somethings still living in their parents’ basements.

But how are we to know that these the result of free markets? We live, after all, not in some free market ideal, but rather a system where government spending accounts for roughly 40 percent of economic output. Why should any of those items be attributed to markets rather than government? Pearlstein is making an assertion rather than a reasoned argument.

Shortly thereafter, Pearlstein not highlights the views of the heads of the conservative American Enterprise Institute and libertarian Cato Institute:

As they see it, regulation is an infringement of individual liberty, while income redistribution, in the form of a progressive tax-and-transfer system, is nothing more than thievery committed against the most talented and productive by those who are not.

While the exact nature of taxation is open for debate, regulation is a pretty open-and-shut case. Serving as a constraint on human behavior, it is almost by definition an infringement on liberty. Although this diminishment of individual liberty may prove a net gain to human welfare in certain instances -- such as restrictions on pollution -- it is impossible to pretend that it does not result in a reduction of personal freedom. This may be an uncomfortable reality for those who support increased levels of government regulation, but it is reality nonetheless.

Pearlstein expands upon regulation later in the column:

The conservative case against regulation, for example, is premised on the proposition that everything that has gone wrong with the markets is the government’s fault. That’s the explanation for the recent financial crisis offered by Allison, who, before taking over at Cato, built BB&T from a local bank into a regional powerhouse. Allison’s culprits are the Federal Reserve, federally chartered Fannie Mae and Freddie Mac, federal deposit insurance, and misguided bank regulations designed to make credit available to low-income households.

I asked Allison recently about mortgage bankers who made lousy loans that they knew would go bad, and investment bankers who knowingly packaged them into securities, and ratings agencies that gave them their seal of approval. His explanation was that once a misguided government provided the wrong incentives and opportunities, such profit-maximizing behavior was to be expected in a market system — a system that eventually would have punished those who were misguided or unethical if the government hadn’t foolishly bailed them out.

Note the Gordon Gekko-like logic here: Because pursuit of self-interest is the essential ingredient in a market system, it somehow follows that individuals and firms are free to act as greedily and selfishly as they can within the law, absolved from any moral obligations.

Note the contrast here: Allison makes the reasoned argument that government interference with the market provided incentives for people to do bad things, while Pearlstein simply thunders against Allison's recognition of human nature and failure to engage in moralizing. But if one is actually interested in protecting people, isn't it best to rely on a system -- such as capitalism -- which ruthlessly punishes ill treatment of one's customers rather than people operating by a moral code? How many companies survive and prosper for any real length of time in a free market environment through intentional abuse and deceit of their customers?

That people will behave badly when provided with the opportunity should be no surprise -- human imperfection is the entire reason government exists. Rather than trying to improve people and their moral code, however, isn't effort better expended on identifying and correcting those skewed incentives which led to such poor outcomes?

Towards the column's conclusion Pearlstein raises the issue of redistribution:

There remains, however, one glaring problem with the moral case against redistribution. For implicit in the imperative to let the productive keep what they earn is an assumption that the markets distribute income in a way that accurately reflects everyone’s relative economic contribution — and therefore is fair. But is that true?

In an economy of self-sufficient farmers and ranchers, people can point to something and credibly claim, “I produced that” or “I built that.” But in a modern, complex economy, the connection between what is produced and who is responsible for producing it is not so obvious. Modern business is a team sport.

Of course compensation reflects contribution! If it didn't, and someone was being underpaid for their output, that person would be hired away -- greedy capitalists are forever on the hunt for arbitrage opportunities. The complexity of the economy, meanwhile, is irrelevant. The price mechanism is an excellent way of cutting through the chaff in order to determine how much value is contributed by each piece of the economic engine. Pearlstein appears to be deliberately confusing the issue in order to built doubt around capitalism's virtues.

It was only 20 years ago, for example, that wage and salary earners reliably captured about 75 percent of the national income, with the rest going to the providers of capital. But in recent years, labor’s share has fallen closer to 67 percent.

So what? These shifts in allocation simply mean is that capital is valued more highly than labor. If this wasn't the case, people would pay more for labor. Pearlstein's use of income share also serves to obfuscate matters -- isn't the more relevant metric actual take home pay? One suspects that Pearlstein is clever enough to realize that one-third of a birthday cake is typically larger than 100% of a cupcake, so why is he so keen on using percentages here?

A similar shift in the distribution of rewards has occurred within firms and within industries, with much more of the income captured by superstar performers or those at the top. Fifty years ago, the typical corporate chief executive earned less than 50 times the pay of the average front-line worker. Today, the ratio is closer to 350 to 1.

Again, what is the revelance? This simply tells us that CEOs have become more valuable. If they weren't, companies -- who are typically not interested in spending more money than what is necessary, at least if they wish to remain in business -- wouldn't pay them so much.

These shifts suggest that the way markets distribute rewards is neither divinely determined nor purely the result of the “invisible hand.” It is determined by laws, regulations, technology, norms of behavior, power relationships, and the ways that labor and financial markets operate and interact. These arrangements change over time and can dramatically affect market outcomes and incomes.

If Pearlstein freely acknowledges that laws and regulations shape so much of the outcomes we see, then why is he talking about free markets? How can he both attribute financial crises and stagnant incomes to the free market earlier in the column while later on admitting that government helps shape such outcomes? Shouldn't the conversation be more about the perverse incentives that arise because of government?

This poses a dilemma for those making a moral case for free markets. If providers of capital could lay a moral claim to 25 percent of the nation’s income as recently as the early 1990s, why do they have a moral claim to 35 percent today? If the top five executives in a big public corporation could once lay claim to 2 or 3 percent of its profits, what gives them the moral right to 10 percent today?

Easy: Because capital and CEOs are more valuable today than in the past. Why is Pearlstein pretending that something so obvious is so difficult to figure out?

And what possible moral justification could there be for a system in which, for every dollar of increased output resulting from higher worker productivity, a mere 13 cents now goes to the typical worker in higher pay and benefits?

The justification is that the worker's contributions aren't enough to justify higher returns. A moral system pays people what they are worth, and the free market pays people what they are worth by definition. Again, if the worker was under-compensated, someone else would hire them away and pay them more.

For all of the seeming conundrums and questions raised by Pearlstein, the answers are surprisingly easy, leaving one to wonder whether the author is being deliberately obtuse. Capitalism is beautiful both in its simplicity and reliance upon free will, both of which stand in stark contrast to the machinations of politicians and coercive nature of government. In the present environment we need more of the former and less of the latter.

Update: Writing in a Forbes column, Wendy Milling responds to Pearlstein's piece by calling capitalism "supremely moral."

Yglesias vs. Ryan

2013-03-13T11:26:00.000-04:00

Following the unveiling of Paul Ryan's latest budget, Matt Yglesias wasted little time reacting by rattling off a series of blog posts which provide a useful window into the leftist mindset. In his first post on the subject Yglesias accused Ryan of no less than "class war on behalf of the rich" and launching a "campaign of thoroughgoing class warfare aimed at Americans in the bottom half of the income distribution in order to protect the interests of a small, high-income minority." Well!

What prompts Yglesias to level such an accusation? Mostly the fact that Ryan would cut the top income tax bracket to 25 percent, implement tax reform that would probably result in higher taxes for those with incomes under $100,000 per year and cuts to some government programs.

But so what? Let's recall the current state of play:

The rich are bearing a hugely disproportionate share of the income tax burden, and thus disproportionately fund the very government programs that Ryan has proposed be cut (mind you that overall federal spending will continue to grow at a 3.4 percent clip under Ryan's budget). In other words, under Ryan's budget those with higher incomes will be punished less and those with lower incomes will be given fewer government goodies while paying more for those they do receive. Unless Yglesias can produce evidence that Ryan's budget will produce a situation in which the rich will be consuming more government goodies than what they pay in, or even that their contributions will be less than their percentage of national income, the charge is baseless.

Furthermore, there is no moral equivalence between one person being forced to give up what they have earned and another person being given less of what was taken from others.

In his subsequent post, Yglesias impugns the very motives behind Ryan's budget proposal:

Something that makes Paul Ryan an interesting figure in my view is that along with his passion for reducing the living standards of the poor in order to bolster the incomes of the wealthy, he maintains a sideline interest in monetary policy.

Notice how Yglesias refuses to entertain the possibility that Ryan's budget is aimed at bringing about prosperity that would ultimately help the poor (the budget's very name of "Path to Prosperity" would seem to suggest Ryan's intentions), but rather implicitly sees hurting the poor while helping the rich as a chief goal (Ryan's "passion"). Stay classy, Matt.

In his last post on the subject, Yglesias wonders about Ryan's tax cut tactics:

If you're going to be the party of tax cuts, then you have to have a tax-cut plan that cuts most people's taxes. Ryan's plan is going to lead to tax increases for a broad swathe of middle-class Americans and do absolutely nothing for low-wage workers.

Except -- and Yglesias is too well-informed not to know this -- well over 40 percent of Americans do not pay federal income tax. How can Ryan or anyone else cut taxes for those who don't pay income tax in the first place? One possible way, of course, would be to reduce the payroll taxes that help fund Medicare and Social Security. Given that one of the major questions before lawmakers is how to fund both programs in coming decades given their projected revenue shortfalls, this is unfeasible in the extreme.

One almost has to applaud the left for their strategery on the tax issue. The tax code is now sufficiently progressive -- more so than what one finds in much of Europe, where heavy taxation is borne by a broad swathe of the population rather than a relative few -- that it is nearly impossible to offer a tax cut of any significance that is not overly tilted towards the rich given that they are the ones who pay so much of the tax. Mission accomplished.

Deng on bureaucracy

2013-03-06T10:35:00.002-05:00

On August 18, 1980 Chinese leader Deng Xiaoping delivered a speech entitled "On the Reform of the System of Party and State Leadership." Here is an excerpt:

Bureaucracy remains a major and widespread problem in the political life of our Party and state. Its harmful manifestations include the following: standing high above the masses; abusing power; divorcing oneself from reality and the masses; spending a lot of time and effort to put up an impressive front; indulging in empty talk; sticking to a rigid way of thinking; being hidebound by convention; overstaffing administrative organs; being dilatory, inefficient and irresponsible; failing to keep one's word; circulating documents endlessly without solving problems; shifting responsibilities to others; and even assuming the airs of a mandarin, reprimanding other people at every turn; vindictively attacking others, suppressing democracy [?!?!], deceiving superiors and subordinates, being arbitrary and despotic, practicing favoritism, offering bribes, participating in corrupt practices in violation of the law, and so on.

Source: Justin Yifu Lin's The Quest for Prosperity.

France: productivity and the union threat

2013-02-23T11:15:00.000-05:00

Writing in the Financial Times, Howard Davies says that French-bashing is misplaced given the country's impressive productivity numbers:

Because the truth is that the productivity of French workers is not at all bad. The French do work fewer hours than most comparable nations. They work, on average, 16 per cent fewer hours than the OECD average, and 25 per cent fewer than the industrialised Asian nations. Yet their output per hour compares very well. A UBS study from 2009 showed that annual French output was $36,500 per head, compared with $44,150 in the US.

But on average the French work 1,453 hours a year, while their American counterparts are clocked in for 1,792 hours. So on a per hour basis the French produce $25, and the Americans $24.60. Not a huge difference, perhaps, but it certainly does not suggest that French workers – while they are on site – are on a permanent coffee break, or drinking a ballon de rouge behind the bike sheds.

As is frequently the case with what one reads on the internet, the most interesting points are made not in the article itself, but the comments section, with at least a couple of comments noting that French productivity statistics are largely a product of incentives to replace labor with capital. William W. Lewis points out in his brilliant book The Power of Productivity (page 54) the role of France's high minimum wage:

In food retailing in the United States and the United Kingdom, a large number of workers paid at the minimum wage provide services such as bag packing, checkouts, floor cleaning and stock rotation not found nearly to the same extent in France. These workers have low productivity. They pull the average food productivity down in the United States and United Kingdom. If food retailing in France provided the same services, its productivity would decline by about 17 percent.

France does not provide these services because the high minimum wage makes these services uneconomic to provide. Thus, the equivalent low-productivity workers in France are unemployed rather than workings as in the United States and United Kingdom. The same thing is true in all services that employ large numbers of workers near the minimum wage in the United States and United Kingdom.

One other comment of note from the FT piece:

Last week French television showed a union representative explaining how his union "militants" had completely rigged an occupied car parts factory with explosives, ready to blow it up.

The comments from the union rep to the effect that "this is where we work and the factory is really ours. If the owners persist in closing it down, we will blow it up so there is nothing left to sell off" go to the very heart of everything that is wrong with the labour market in France.

In the view of the unions, the primary role of a company is not to make money for its shareholders -perish the thought. No, it is first and foremost to provide jobs. At any cost and shareholders be damned.

Imaging this same scene in Canada or the US: union reps threatening to blow up a factory, threatening to destroy shareholder property and showing a television crew how the plant has been rigged. These fellows would in short order be arrested under a variety of citations. Not in France, where the union mob rules and the current socialist government laisse faire.

Unreal.

Inequality update

2013-02-23T10:42:00.003-05:00

Another day, another cover story on the alleged dangers of income inequality. Writing in Foreign Affairs, author Jerry Z. Muller warns of dire consequences if vast disparities in income are not remedied:

Despite what many on the right think, however, [inequality] is a problem for everybody, not just those who are doing poorly or those who are ideologically committed to egalitarianism -- because if left unaddressed, rising inequality and economic insecurity can erode social order and generate a populist backlash against the capitalist system at large.

This is an assertion that inequality worriers frequently trot out, but the evidence or argument spelling out exactly how or why this would take place is usually neglected. Despite the lengthy piece, Muller -- as is typical when such assertions are made -- never gets around to justifying or explaining this claim. Rather, the article mostly consists of an examination of the factors driving inequality as well as some possible measures to counter this supposed problem.

That's unfortunate, because the logic behind this notion isn't obvious, and it's difficult to think of offhand examples of capitalist/free market countries where widespread dissatisfaction with this system prompted a pronounced shift towards statism (in contrast, there is no shortage of countries which have opted for moves in the opposite direction). Polling data also seems to throw Muller's assertion into question:

(click to enlarge)

If one were to rank those countries surveyed by income inequality it would look like this (from least unequal to most unequal out of 136 countries; no data for Lebanon):

126. Germany
114. Pakistan
110. Czech Republic
106. Italy
104. Spain
100. France
98. Greece
90. UK
89. Poland
88. Egypt
76. India
74. Japan
60. Tunisia
61. Jordan
51. Russia
41. US
27. China
18. Mexico
16. Brazil

As can be seen, there is no obvious correlation between support for capitalism/free market economics and income inequality levels. Indeed, support for the free market is actually greatest in some of those countries -- the US, China and Brazil -- which are ranked in the upper echelons of inequality. That inequality undermines support for capitalism does appear to be supported by polling data.

This is not to say, however, that the piece is free of salient or interesting points. Muller points out that some of the factors contributing to inequality are those commonly regarded as outside the purview of government or public policy. One of these is the quality of parenting:

Hereditary endowments come in a variety of forms: genetics, prenatal and postnatal nurture, and the cultural orientations conveyed within the family. Money matters, too, of course, but is often less significant than these largely nonmonetary factors. (The prevalence of books in a household is a better predictor of higher test scores than family income.) Over time, to the extent that societies are organized along meritocratic lines, family endowments and market rewards will tend to converge.

Educated parents tend to invest more time and energy in child care, even when both parents are engaged in the work force. And families strong in human capital are more likely to make fruitful use of the improved means of cultivation that contemporary capitalism offers (such as the potential for online enrichment) while resisting their potential snares (such as unrestricted viewing of television and playing of computer games).

Another factor is immigration and the differing performance of various ethnic groups:

Those western European nations (and especially northern European nations) with much higher levels of equality than the United States tend to have more ethnically homogeneous populations. As recent waves of immigration have made many advanced post industrial societies less ethnically homogeneous, they also seem to be increasingly stratifying along communal lines, with some immigrant groups exhibiting more favorable patterns than the preexisting population and other groups doing worse.

In the United Kingdom, for example, the children of Chinese and Indian immigrants tend do better than the indigenous population, whereas those of Caribbean blacks and Pakistanis tend to do worse. In France, the descendants of Vietnamese tend to do better, and those of North African origin tend to do worse. In Israel, the children of Russian immigrants tend to do better, while those of immigrants from Ethiopia tend to do worse. In Canada, the children of Chinese and Indians tend to do better, while those of Caribbean and Latin American origin tend to do worse.

Much of this divergence in achievement can be explained by the differing class and educational backgrounds of the immigrant groups in their countries of origin. But because the communities themselves act as carriers and incubators of human capital, the patterns can and do persist over time and place.

In the case of the United States, immigration plays an even larger role in exacerbating inequality, for the country's economic dynamism, cultural openness, and geographic position tend to attract both some of world's best and brightest and some of its least educated. This raises the top and lowers the bottom of the economic ladder.

A couple of points:

That two of the most significant factors cited by Muller which promote inequality are parenting and ethnicity/culture is instructive. This suggests that much of the explanation for inequality lies not in systemic problems, but rather individuals and the choices they make.

If inequality really is the first order, dire threat the left commonly claims it to be, leftists should also be leading the charge for restrictions to be placed on unskilled immigration, such as from Latin America. After all, fewer poor immigrants means fewer poor people which in turn means less inequality. Along similar lines, another logical initiative would be to encourage poor people to have fewer or no children (arguably this is already the case given leftist support for abortion and "free" birth control via health insurance, although neither is explicitly or exclusively aimed at the poor).

Income inequality by itself is not a problem. Some people making more money than others is not a threat to society. Rather, at worst, such inequality may be a symptom or reflection of problems which exist, such the lack of meritocracy and barriers to opportunity. But as long as the focus remains on inequality itself -- with the resulting implication that simply taking money from some people and transferring it to others would resolve the problem (useful if one is pushing a big government agenda) -- the needed conversation about how to improve opportunity and remove barriers will remain but a muffled noise in the background.

Tax fairness

2013-02-23T10:10:00.000-05:00

The New York Times editorializes in favor of higher taxes:

To reduce the deficit in a weak economy, new taxes on high-income Americans are a matter of necessity and fairness;

Neither assertion is true. With regard to necessity, the deficit could just as easily be tamed by slashing government spending. That may not be the preferred solution of the Times, but to pretend that no alternatives exist to higher taxes is simply inaccurate. As for the claim that higher taxes on the rich are required as a matter of fairness, the editorial board must operate under a peculiar definition of the term as revealed by these charts:

In other words, the wealthy already bear a wildly greater percentage of the tax burden than their percentage of income, have since been hit by a significant tax hike and are still viewed as the beneficiaries of an unfair tax system. Unreal. One can only speculate what percentage of income paid in tax would be sufficient to be deemed fair by the Times, or by what mental gymnastics they would arrive at such a figure.

Stiglitz's myth-making

2013-02-17T19:31:00.002-05:00

Nobel prize-winning economist Joseph Stiglitz in today's New York Times:

Perhaps a hundred years ago, America might have rightly claimed to have been the land of opportunity, or at least a land where there was more opportunity than elsewhere. But not for at least a quarter of a century. Horatio Alger-style rags-to-riches stories were not a deliberate hoax, but given how they’ve lulled us into a sense of complacency, they might as well have been.

It’s not that social mobility is impossible, but that the upwardly mobile American is becoming a statistical oddity. According to research from the Brookings Institution, only 58 percent of Americans born into the bottom fifth of income earners move out of that category, and just 6 percent born into the bottom fifth move into the top. Economic mobility in the United States is lower than in most of Europe and lower than in all of Scandinavia.

Does the US remain the land of opportunity? While the answer is in the eye of the beholder, the fact that over one million people have sought and obtained permanent legal residency status annually in this country since 2005 would seem to suggest so.

A more fundamental problem with Stiglitz's screed, however, lies in his use of statistics, as revealed by one of the very links he provides (actually the link is broken, having melded two different links together) which actually undermines his description of Scandinavia:

The income compression in rival countries may also make them seem more mobile. Reihan Salam, a writer for The Daily and National Review Online, has calculated that a Danish family can move from the 10th percentile to the 90th percentile with $45,000 of additional earnings, while an American family would need an additional $93,000.

Even by measures of relative mobility, Middle America remains fluid. About 36 percent of Americans raised in the middle fifth move up as adults, while 23 percent stay on the same rung and 41 percent move down, according to Pew research. The “stickiness” appears at the top and bottom, as affluent families transmit their advantages and poor families stay trapped.

When everyone earns roughly similar amounts of money, social mobility is much easier to achieve. Imagine two villages, each with five residents (thus each person occupies one income quintile). In the first village, the incomes of each resident differs by $1,000. In the next village each resident is separated by $1 million. In which village is it easier to leapfrog the person in front of them (or conversely, fall into a lower quintile)? Would one rather be a millionaire in a village where $5 million would be required to jump from the bottom income quintile to the top, or the village where a $5,000 boost to a $30,000 income would make all the difference? Which village is really better off?

As a Nobel laureate in economics, Stiglitz is surely aware of all of this, but nonetheless plays such statistical games to advance his agenda.

These aren't Stiglitz's only questionable assertions, as he later states in the column that "government support for many state schools has been steadily gutted over the last few decades — and especially in the last few years." How does such a statement comport with this chart from USgovernmentspending.com?

Where is the gutting? And remember, since this is in percentage of GDP terms, it actually understates the amount devoted to higher education spending. While the percentage spent on tertiary education has largely held constant since about 1970 at roughly 1 percent of GDP, that figure translates into $58.3 billion for 1970 (current dollars) vs. $150 billion today. While the amount spent has grown by nearly 160 percent, population growth since 1970 has only been about 53 percent. While one can perhaps argue that such an amount is insufficient, it absolutely cannot be argued that such funding has experienced a gutting or anything of the kind.

Later on Stiglitz declares that "Americans are coming to realize that their cherished narrative of social and economic mobility is a myth." Oh really? Last year the Pew Charitable Trusts released a report entitled "Pursuing the American Dream: Economic Mobility Across Generations." Among it's key findings:

Eighty-four percent of Americans have higher family incomes than their parents had at the same age, and across all levels of the income distribution, this generation is doing better than the one that came before it.

Ninety-three percent of Americans whose parents were in the bottom fifth of the income ladder and 88 percent of those whose parents were in the middle quintile exceed their parents’ family income as adults.

Rather than a myth, the notion of economic mobility appears to remain alive and well, which perhaps explains why millions of people are so anxious to immigrate to these shores. If Joe Stiglitz has a valid point, why does he choose to rely upon half-truths, distortions and unsupported assertions to make it?

The retirement bailout

2013-02-10T10:36:00.002-05:00

Duncan Black, aka Atrios, makes the case in USA Today for yet another bailout -- this time for those who have failed to save sufficiently for retirement:

We need an across the board increase in Social Security retirement benefits of 20% or more. We need it to happen right now, even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes.

Over the past few decades, employees fortunate enough to have employer-based retirement benefits have been shifted from defined benefit plans to defined contribution plans. We are now seeing the results of that grand experiment, and they are frightening. Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles.

Frankly, that's an optimistic way of putting it. Let me be alarmist for a moment, because the fact is the numbers are truly alarming. We should be worried that large numbers of people nearing retirement will be unable to keep their homes or continue to pay their rent.

According to the Center for Retirement Research at Boston College, the median household retirement account balance in 2010 for workers between the ages of 55-64 was just $120,000. For people expecting to retire at around age 65, and to live for another 15 years or more, this will provide for only a trivial supplement to Social Security benefits.

And that's for people who actually have a retirement account of some kind. A third of households do not. For these people, their sole retirement income, aside from potential aid from friends and family, comes from Social Security, for which the current average monthly benefit is $1,230.

The logic presented is simply hideous: people have failed to save sufficiently for a retirement which will allow them to maintain their current lifestyles (a life event for which they have had literally decades to prepare), social security is inadequate to the task and therefore the confiscation of money from others in the form of taxes should be increased to pay for a 20+ percent hike in payouts.

Let us begin by appreciating how truly pathetic $120,000 in savings is for a household on the verge of retirement. If a household composed of two boomers born in 1950 did not save a single dollar for retirement until age 30 and then began saving a mere $150 per month ($1,800 per year, or 6 percent of salary for household income of $30,000) they would have $125,000 by age 60 assuming a 5 percent return on investment (Yes, $30,000 would have been a decent household income in 1980, but by 2004 it would have been $14,000 below the median, so inflation wouldn't seem to be a big consideration here).

But a 5 percent return is basically a worst case scenario. Remember, a boomer born in 1950 who didn't save a dime until turning 30 in 1980 was perfectly positioned to take advantage of the greatest bull market in history lasting from 1982-1999. Indeed, from 1980 until 2010 the S&P had annualized returns of 11.36 percent. Consider this: someone who averaged $30,000 in salary from age 30-60 and contributed a mere 3 percent to their 401(k) per month (401(k)s were enacted into law in 1978) -- $75 -- would still have had over $170,000 in retirement savings even assuming their employer provided them with zero match and a 10 percent annual return (thus underperforming the market by 1.36 percentage points). For someone who contributed $100 per month and obtained the S&P average they would have realized over $300,000 with five years still remaining until retirement age!

In other words, for a household from the baby boomer cohort to have only $120,000 or less in all but extreme cases reflects a conscious decision not to save for retirement. If they didn't or don't see the need to save for their own retirement, why should the rest of us? After all, retirement and advanced age are hardly a secret or unforeseen event. Do they bear no responsibility for their own fiscal situation?

Perhaps, however, this attitude is too harsh on those who have failed to save. Again, let's place ourselves in the shoes of someone born in 1950. In 1972, when such a person was 22 years old, Congress voted to increase social security benefits by 20 percent and link payouts to inflation. If government has promised to provide a steady income stream to those in retirement, and has already boosted the level of payouts once, how much incentive is there for one to diligently save? Why be an ant when grasshoppers have all the fun?

Also note that, in addition to these increased benefits, Congress boosted social security taxes from 4.6 percent in 1972 (and remember that through tax incidence it is widely believed the matching social security tax paid by the employer is actually borne by the employee -- see f ootnote #8 here for further confirmation of that -- for an effective tax rate of 9.2 percent) to 6.2 percent (effectively 12.4 percent) by 1990. Given the combination of higher taxes and higher payouts, why should someone be surprised that so many people have failed to adequately save?

Think this silly or outrageous logic? Consider what would happen should Black's proposal to increase Social Security payments be adopted along with the higher taxes to pay for it. Would people continue their savings habits exactly as before? Or would they see that savings is a fool's errand given the government's history of increasing payouts for those who fail to save adequately? Is that really so difficult to imagine? Neither this moral hazard nor the negative economic impact of higher taxes used to pay for it is addressed or even acknowledged by Black, which surely he must be aware of given his doctorate in economics. All that seemingly matters is that people have failed to adequately save enough money to preserve their lifestyle in retirement, and therefore it should be given to them.

Black's attitude is nicely summarized in the piece's penultimate paragraph:

If the consensus is that we need policies in place to ensure that the vast majority of people have at least a comfortable retirement, then we need to adjust our current failing policies. Expecting people to save sufficiently for their retirement, even if those savings are subsidized by our tax code, is unrealistic.

It's a beautiful representation of the mindset among so many of those on the political left: people are entitled to something, they are too dumb or otherwise incapable of achieving it on their own and therefore the rest of society owes it to them. It's equal parts economic ignorance (failure to account for the impact of higher taxes and moral hazard), pessimism/borderline misanthropy (lack of belief in humans to manage their own affairs) and arrogance/condescension (believing one has the foresight and wisdom to micromanage the affairs of society, in this case by confiscating money from some and giving it to others).

This is the mentality which holds sway among so many of our elected officials.

The truth about spending

2013-01-23T22:09:00.000-05:00

In recent days members of the left-wing economic brain trust including Paul Krugman, Kevin Drum, Think Progress and Matt Yglesias have all highlighted the fact that federal spending has not grown very much in recent years. Think Progress, and seemingly Drum as well, would have us believe that this greatly undermines the notion that President Obama is a big spender.

There are at least a couple of problems with this, the first being that the president does not dictate spending levels, as spending bills must originate in Congress. In 2009 and 2010, however, President Obama's party controlled Congress by healthy margins and -- as the de facto head of the Democratic party -- the president had considerable leeway in setting appropriations levels. Here's what spending looked like during that time period:

As can be seen, over this two year period spending increased by roughly $500 billion. While one can argue this spending hike was due to automatic stabilizers that kick in during a recession such as unemployment insurance and food stamps, note that spending as of January 2011 was still $200 billion higher than when the recession officially ended.

In 2011, however, Republicans captured controlled of the House of Representatives and vowed to impose spending restraint, with the result that Obama lost some control over the federal purse strings. Here's what spending has looked like since then:

During this time period spending declined by about $70 billion. Perhaps these two paragraphs are more a case of correlation than causation, but there is good reason to doubt that's the case.

With regard to the notion that spending should no longer be considered particularly high, meanwhile, there are problems with that argument as well. Consider this chart from the Mercatus Center showing federal spending in per capita terms adjusted for inflation (which strikes me as the best method of placing such expenditures in context):

Lest one think that the right-wing Mercatus Center is simply playing games with numbers, lefty Kevin Drum offers up pretty much the same data, although with a partisan spin:

While Drum posts this chart as an addendum to a post in which he said that "What we have is a problem with Republicans not wanting to pay the bills they themselves were largely responsible for running up," this chart actually tells a somewhat different story. The reality is that following an era of relative spending restraint, spending shot up spectacularly under Bush. Rather than take this spending back towards the level of the previous Democrat to occupy the White House, Obama actually ratcheted spending further upwards still. Bush set the bar lower, but Obama managed to take it even lower.

We still have a spending problem.

The Swedish model

2013-01-13T18:48:00.000-05:00

The McKinsey Global Institute (MGI) has released a new report on Sweden's economy worth highlighting. Particularly interesting is its description of some of the key factors which drove the country's economic turnaround in the mid-1990s:

Deregulation and increased competition

One of the key driving forces behind the increased productivity is the increased competitive intensity. From 1993 to 2010, competition in many areas of the Swedish economy intensified, mainly driven by the deregulations in the 1980s and 1990s, notably in the telecom, electricity, gas, postal, retail and banking sectors. Competition laws were also strengthened through the introduction of clearer laws against cartel formation and exploitation of a dominant market position.

Following the creation of the World Trade Organization (WTO) in 1995, customs duties for industrial goods were lowered by an average of 40 per cent in the industrialised nations. Sweden also joined the EU in 1995, which facilitated free movement and international trade in several areas. These changes encouraged an increase in productivity. A study published by the OECD suggests that reduced barriers to market entry added about 0.4 percentage points to annual productivity growth over the period 1994-2003.

A stronger economic and political framework

During and after the crisis in the 1990s, a number of key reforms were implemented through cross-party decisions. These laid the foundation for a stable macroeconomic framework. Even before the crisis, in 1991, an extensive tax reform (the “tax reform of the century”) was implemented, resulting in lower rates of marginal income tax, lower rates of corporate tax, a broader tax base and more uniform taxation of different types of income.

In the mid-1990s, a pension reform was implemented, which introduced self-funding and linked the size of pensions to economic performance. This created a more robust pension system and strengthened incentives to continue working in old age. In the second half of the 1990s, new budget rules were also introduced: a process for budget decisions in which the Swedish parliament is required in a single context to decide on total government expenditure, a surplus target for public finances and a government expenditure ceiling.

To review:

Sweden has reformed its public pension system, including a partial privatization by which workers can place 2.5 percent of earnings in private accounts. In contrast, the US has done exactly nothing to change its Social Security system. Indeed, a proposal by President George W. Bush to allow workers to contribute a mere 2 percent of taxable wages to a private account was fiercely resisted by Congressional Democrats. Prospects for reform going forward continue to be dim, with top Democrats in such denial regarding the program that they insist the program is not adding to US deficit woes, even though the truth is the opposite.

While Sweden moved to lower marginal tax rates, the US has pursued the opposite approach, with President Obama recently signing a tax increase on top income earners into law. The US corporate tax rate, meanwhile, remains the highest in the industrialized world, and despite much talk the Obama administration has yet to move forward on any kind of tax reform. Indeed, rather than expand the tax base the administration insisted in the recent fiscal cliff deal that tax breaks for various special interests be maintained.

Sweden has reformed its postal system -- including ending the monopoly enjoyed by state-owned Sweden Post. The US, meanwhile, has not even entertained the possibility of ending the USPS monopoly or otherwise reforming it even while the organization hemorrhages money. More generally, movement in Washington has been towards greater regulation of the economy as deregulation has become a dirty word.

While a key factor in Sweden's turnaround was its embrace of free trade and lowered trade barriers, the Obama administration has not come up with a single new trade initiative during its four years of existence. Indeed, each one of its pursuits on the trade front has been a holdover from the Bush administration, whether it is the free trade deals with Colombia, Panama and South Korea (which were re-negotiated by the administration to make them more protectionist) or the Trans-Pacific Partnership.

It's curious that the American left, which so often likes to point to Sweden as an example of good public policy, has pursued in so many ways the exact opposite of the policies that have been praised by the MGI as playing a key role in that country's turnaround.

Bartlett and the welfare state

2013-01-01T15:21:00.000-05:00

Following Bruce Bartlett's firing from the National Center for Policy Analysis for his criticisms of George W. Bush -- best summarized in his 2006 book Impostor -- Bartlett was able to plausibly claim that his dismissal was a result not of deviations from right-wing orthodoxy, but for holding Bush's feet to the conservative fire. Indeed, Impostor's Amazon.com book description highlights Barlett's criticism of Bush for, among other things, "expanding the size and scope of government, "allowing the federal budget to mushroom out of control" and the implementation of an "enormous new Medicare entitlement."

Since that time, however, Bartlett's rhetoric has drifted in a distinctly leftward direction, and by 2010 Tino Sanandaji labeled him a "European-style Social Democrat." Any lingering doubts of Bartlett's shift to the left should be completely erased by a recent missive for the Economix blog, in which he purports to make a conservative case for the welfare state. Yes, the same guy who wrote a book blasting Bush's expansion of the welfare state now makes a living penning blog posts explaining its virtues. It makes for interesting reading:

There are sound reasons why a conservative would support a welfare state. Historically, it has been conservatives like the 19th century chancellor of Germany, Otto von Bismarck, who established the welfare state in Europe. They did so because masses of poor people create social instability and become breeding grounds for radical movements.

This is bizarre. Otto von Bismarck as conservative? Beyond his key role in founding the modern welfare state, wikipedia notes that von Bismarck also opposed free trade, engaged in state persecution of both Catholics and Poles, and preferred rule by bureaucrats to democracy:

Elected officials did not have real control of the government. Bismarck distrusted democracy and ruled through a strong, well-trained bureaucracy with power in the hands of a Junker elite representing the landed aristocracy in the east.

How any of this is compatible with, or relates to, modern day conservatism or right-wing thought is not obvious. But then again, none of that likely matters when there is an agenda to be pursued. Bartlett also leaves out an important detail regarding von Bismarck's decision to establish a welfare state:

His paternalistic programs won the support of German industry because its goals were to win the support of the working classes for the Empire and reduce the outflow of emigrants to America, where wages were higher but welfare did not exist.

Indeed, this gets at what is perhaps the biggest flaw in Barlett's argument: if the lack of a welfare state holds such attraction for workers, why were so many Germans eager to emigrate to the welfare-less United States even after von Bismarck began implementation of the welfare state? Furthermore, if the welfare state helps thwart radical political movements, why has Europe typically proved a better breeding ground for such movements than the US? If anything, it seems that capitalism -- the purer the better -- is the real salve for unrest.

A few paragraphs later Bartlett says this:

One problem with this conservative view is its lack of an empirical foundation. Research by Peter H. Lindert of the University of California, Davis, shows clearly that the welfare state is not incompatible with growth while providing a superior quality of life to many of those left to sink or swim in America.

In a new paper for the New America Foundation, Professor Lindert summarizes his findings. He points out that there are huge efficiencies in providing pensions and health care publicly rather than privately. A main reason is that in a properly run welfare state, benefits are nearly universal, which eliminates vast amounts of administrative overhead necessary to decide who is entitled to benefits and who isn’t, as is the case in America, and eliminates the disincentives to work resulting from benefit phase-outs.

There are several problems here:

Few economists, if any, make the argument that welfare states are incompatible with growth. Rather, the argument is that welfare states, and their attendant tax burdens, serve as an economic drag. Welfare states don't mean zero growth, they just mean less growth than would otherwise be the case.

A superior quality of life is in the eye of the beholder, and it is also not obvious how much the quality of life is a product of public policy. While it is certainly greater than zero, other factors such as climate and culture play a determining role.

Bartlett's reference to "sink or swim" in the US is strange and inaccurate. The US, in fact, is a welfare state, with 54% of the federal budget in 2011 going to health care, social security and safety net programs. Robert Samuelson has calculated that the percentage of Americans receiving some kind of public assistance "probably exceeds 50 percent."

Citing the reduction in administrative overhead as a key reason for adopting government-run health care programs is, at best, incomplete. One cannot properly assess efficiency without also knowing results. If one organization has higher overhead than another, but produces better results, the higher administrative costs may well be worth it. Also note that anti-fraud measures are an administrative costs, and that fraud is estimated to have cost Medicare well over $40 billion in 2010. Thus, it may well be the case that Medicare could profit from higher administrative costs. Further consider that if one's patients are elderly, and thus likely to have higher health care costs (as with Medicare) that administrative costs are likely to be lower as a percentage of expenditures.

Returning to the growth issue, in Lindert's paper for the New America Foundation he says the following:

Accepting economists’ preference for broad taxes and benefits, and seeing the administrative cost saving of universalism, will prepare one for a historic result that still surprises some Americans. The welfare states of Northern Europe, with their social spending as high as 30 percent of GDP in some cases, have not suffered any clear net loss of GDP from it. So say decades of data on GDP and economic growth, with or without the use of econometric regression analysis. This is what I have called the “free lunch puzzle”: large democratic welfare states, with universal entitlements, have not paid any net price in terms of economic growth or competitiveness, while following policies that delivered more equal incomes, less poverty, slightly higher life expectancy, and cleaner government relative to the United States or the average small-government economy.

While some may try to cite the problems facing Europe, the fiscal troubles of Mediterranean Europe and Ireland are unrelated to the welfare state. Rather, the Mediterranean countries deliver relatively little aid to schools or the poor, while over-protecting senior workers in older industries. Meanwhile, both Spain and Ireland have suffered mainly from the bursting of huge market bubbles in real estate.

This is a neat trick: the superior economic performance of the relatively small and homogeneous Scandinavian countries is a validation of the welfare state but the poor economic performance of the larger Southern European countries tells us nothing. As Tino Sanandaji points out, when it comes to the welfare state it's little coincidence that the left prefers to talk about Northern Europe instead of what's taking place further south.

Lindert's claim that Northern Europe has not paid any net price in terms of GDP, meanwhile, is not obvious given higher per capita GDP in the US over Scandinavia by a margin of at least $7,000 (Norway is the lone exception, but also a special case given that it's oil wealth has spawned a sovereign wealth fund so huge that its value ($654 billion) exceeds the country's GDP ($486 billion)).

Bartlett continues:

A 2003 study in the New England Journal of Medicine found that Canada’s single-payer health system had less than a third of the per-capita administrative cost of the United States system, with its many private insurance companies and overlapping government programs – $307 per year in Canada versus $1,059 in the United States. And although American conservatives are fond of pointing to cases where Canadians come to the United States for treatment, a 2009 Harris poll found that 82 percent of Canadians favor their health system over the American one.

Americans believe that their health system is the best in the world, but in fact it is not. According to the Commonwealth Fund, many countries achieve superior health quality at much lower cost than paid by Americans. A detailed study of the United States and England in the American Journal of Epidemiology in 2011 found that over a lifetime the English have better health than Americans at a fraction of the cost.

Again, the citing of administrative cost isn't hugely informative. By this thinking, the federal government could also wring new efficiencies if it chose to nationalize the movie theater business and eliminate overlaps between the various chains, but few people likely think this could produce a superior outcome. The citing of poll data, meanwhile, is pretty thin gruel given that the vast majority of Canadians have not received health care treatment in the US, and therefore have little basis for comparison outside of what they have read.

With regard to the state of the US health care system, it is perfectly conceivable that it is inferior to that of others, but that's not surprising given the high level of government intervention in this sector. Indeed, in addition to regulation, it should be recalled that government spending on health care in the US has increased from 24 percent of healthcare expenses in 1960 to 48 percent in 2009. Indeed, note that government in the US spends more money per capita than any other country examined by the Commonwealth Fund report:

(click to enlarge)

Suffice to say, the US hardly represents some free market ideal in health care, and it does not follow that the solution to the country's health care ills lies in an even bigger role for government.

It is also unclear how much differences in health care systems explain health outcomes. It is worth keeping in mind, for example, that in the US -- where most states have similar health care systems --pronounced differences in outcomes are still found as demonstrated by this diabetes map or this list of death rates from various cancers by state (see page 8). It's perhaps with such considerations in mind that the AJE study referenced by Bartlett offers only speculative reasons for explaining differences between the US and England, and notes the possibility that factors other than the health care systems such as "cross-country differences in social or physical environmental conditions or lifestyle" play a role.

After further discussion of US health care costs as well as US social spending via tax expenditures, Bartlett concludes with the following:

American conservatives routinely assert that the people of Europe live in virtual destitution because of their swollen welfare states. But according to a commonly accepted index of life satisfaction, many heavily taxed European countries rank well above the United States, including the Netherlands (where total taxes were 38.7 percent of G.D.P. in 2010 compared with 24.8 percent in the United States), Norway (42.9 percent), Sweden (45.5 percent) and Denmark (47.6 percent).

The first sentence is a strawman, as there is little literature making the case that Europeans live in "virtual destitution" (it's not even apparent this is the argument being made by the article he links to, whose chief argument appears to be that the welfare state cannot "provide eternal security and freedom from want"). There is, however, empirical support for the claim that Europeans are poorer than Americans.

Conflation of the index of life satisfaction with tax burdens, meanwhile, is simply absurd. First of all, as Deirdre McCloskey argues, the science of "happyism" and its measurement is fairly problematic. Second, while Bartlett highlights the fact that the US trails high-tax countries such as the Netherlands and most of Scandinavia in happiness, he neglects to mention that this same index has the US leading other European countries with higher tax burdens such as France (44.6 percent as measured by the Heritage Foundation), Germany (40.6 percent), Spain (37.3 percent), Italy (42.6 percent), Iceland (40.4 percent) and the UK (39 percent). But why cite data that doesn't fit the narrative?

It's the lazy conclusion to a vacuous column.

Related: Further commentary on Bartlett's column from the Cato Institute's Alberto Mingardi.

Income inequality update

2012-12-31T10:07:00.000-05:00

Writing in the New York Times, Jason DeParle -- author of the highly-recommended American Dream -- profiles three young women from poor and struggling families in order to tell a larger story about income inequality. Academically gifted, all three women see higher education as their means of realizing a better life than that of their parents. As of DeParle's writing, however, none had -- despite enrolling in college -- managed to actually graduate.

Assuming the women do not later head back to obtain their diplomas, the most likely outcome is that all three will languish in relatively low paying jobs with few prospects for advancement. Their incomes will likely mirror that of their parents, while those in their age bracket from wealthier backgrounds who successfully complete college and graduate school are good bets to obtain jobs with much higher incomes. The end result will be that income inequality is perpetuated and perhaps even widened.

So how is this explained? Who are the culprits behind this phenomenon? Did the country's one percenters dispatch their minions to throw these women's ambitions off track? Did a Koch Industries-funded SuperPAC enact public policy changes that made college education an impossible dream? Did Mitt Romney place them in his infamous binders? Of course not. Rather, the reasons for their inability to achieve their collective goal (at least as presented in the article) are more mundane: poor parenting (none of their girls had a consistent father), bad choices (especially with regard to boyfriends) abetted by ignorance and simple misfortune.

To the extent public policy played an obvious or direct role, it was perhaps found in the low quality of the government-run school the women attended:

Ball High [School] was hard on goals. In addition to Bosco, a drug-sniffing dog profiled in the local paper, the campus had four safety officers to deter fights. A pepper spray incident in the girls’ senior year sent 50 students to the school nurse. Only 2 percent of Texas high schools were ranked “academically unacceptable.” Ball was among them.

Of course, if they had access to vouchers in order to attend private schools, better options may have presented themselves. Notably, the political left -- the loudest voices in decrying income inequality -- typically leads the opposition against such measures.

While DeParle's article in no way offers a comprehensive explanation for income inequality, the story he tells does not appear to be terribly unusual or exceptional (aside, perhaps, from the level of drive possessed by these teenage women). Is it really so hard to believe that much of what drives income inequality is simply a product of choices and upbringing?

And if one acknowledges this, then how does it follow that the logical solution -- so often presented by our friends on the left -- is higher taxes on the rich? How would that in any way change what the article describes? Then again, changing people's behavior patterns and decision-making -- something that would have made an actual difference in the article -- is difficult, while tax increases are comparatively easier (and give politicians more money to play with).

The reality of income inequality continues to be this: few people, if any, are poor because the rich are rich, income inequality is at best (worst?) a symptom of larger problems in society rather than a cause, and higher taxes on the rich simply represent a long-standing left-wing wish list item than a solution to the phenomenon of income inequality.

Houston, we have a spending problem

2012-12-18T07:28:00.001-05:00

Via The New York Times:

A couple of items worth highlighting:

The last time the US enjoyed a budget surplus, spending was 4-5 percent lower as a share of GDP than it is today. We hear a lot of talk about tax policy under President Clinton, but the spending side has gone almost entirely unremarked upon.

Note that dating back to 1950 the amount of revenue collected never exceeds 20 percent of GDP with the exception of the peak of the dot com boom. This is true even during the 1950s when top marginal tax rates were far, far higher than they are today. Of course, this is basically a restatement of Hauser's Law, which -- like spending -- is almost completely unmentioned in the current fiscal debate. The idea that we can tax ourselves into a balanced budget, or even a much lower deficit, does not appear supported by history.

Why aren't urban dwellers libertarian?

2012-12-13T18:51:00.000-05:00

The Atlantic Cities website has run a series of articles focused on the urban-rural divide in the country's politics. This map perhaps places the contrast in its starkest relief, dramatically illustrating urban voters' preference for the Democratic party, and by extension larger government:

Upon reflection this should be something of a puzzle, given urban dwellers' myriad experiences with government failure. Indeed, these should be prime candidates for membership in the vast right-wing conspiracy. Consider, for example, life in Washington DC.

Schools. The schools are, to put matters mildly, of questionable quality. Standardized testing earlier this year revealed that only 46 percent of the students in traditional government-run schools (i.e. not charters) were rated as proficient in math and 44 percent in reading. Amazingly, both of those figures are improvements over the previous year. Not only are the schools lacking academically, but they also suffer from violence. The Washington Examiner reports that during the 2010-11 school year there were numerous incidents of both students attacking teachers and teachers attacking students, while according to the Heritage Foundation:

Statistics show that the D.C. public school system is one of the most dangerous in the country. In 2009, the U.S. Department of Education reported that 11.3 percent of D.C. high school students reported being "threatened or injured" with a weapon on school property during the previous year--a rate well above the national average and higher than most states. Reports from nongovernmental sources have confirmed that many students in D.C. schools are exposed to violence and crime on a regular basis. For example, The Washington Post reported in 2007 that nine violent school incidents are reported on a typical day in Washington, D.C.

All this while spending nearly $30,000 per student!

Housing. As the Greater Greater Washington blog (no bastion of right-wing thought -- blog founder David Alpert describes himself as a lifelong Democrat) points out, government regulation is a key factor behind the high cost of housing in the area:

The local process for getting residential projects approved and built is complex, costly, time-consuming, and uncertain. Fees and proffers can add between $30,000 and $50,000 to the cost of a housing unit.

The developer also is required to provide many "extras" that may not specifically have been among the items demanded by the buyer. The most recent buyer ends up paying for amenities that the entire neighborhood enjoys—parks, bike racks, benches, and walking trails, among other benefits.

Contrary to popular belief, it is not necessarily the developer who pays; the extra costs usually are incorporated in the final sales price or rent amounts. If the cost is more than what the market will bear, the project simply won't get built.

...In addition to local regulations, a variety of state and federal regulations relate to new home construction. States have transportation and environmental regulations that apply to new projects. for example, a requirement to conduct traffic impact analyses when traffic is expected to be over a certain threshold, and the power to deny curb cuts or access to state roads.

At the federal level, water quality regulations are controlling runoff to local watersheds, pre-empting local decision-making on the right location for new housing units. The developer has to work not only with local planning staff, but often also with a range of state and federal agencies and reviewers during each development application.

As there is no one who can coordinate agencies at different levels of government or unify their comments on a development application, there is the potential for prolonged back and forth on certain requirements where different governmental levels have regulations that conflict with those of other levels.

The regulatory morass has served to enable NIMBYs determined to downsize or even outright prevent development from taking place. Construction of a new grocery store and housing on Wisconsin Avenue, for example, started earlier this year after a delay of over ten years due to various legal hurdles thrown up by some neighborhood residents. Given the ability to opponents to gum up the regulatory works, little wonder another developer decided to scale back plans from a new building with 70 housing units to 9 or 10 in the face of neighborhood opposition.

All of this regulation has served to increase costs, limit supply and boost the price of housing.

Business regulation: It isn't just housing where the cost of government regulation is found, with local bureaucrats, politicians and NIMBYs also taking aim at businesses. Note this recent article from the Washington Blade, a gay-focused publication not exactly known for spouting right-wing sentiment:

Seasonal Pantry market and supper club chef Daniel O’Brien and Sundevich eatery operator Ali Bagheri are both residents of the Logan-Shaw neighborhood where their jointly owned businesses are located. Teaming up to plan the conversion of a vacant 9th Street, N.W., storefront into an intimate 56-seat bar serving a rustic light menu and crafted cocktails self-initialized as A&D, they didn’t anticipate the licensing hassles that awaited.

Adjacent to the charming street-side Seasonal Pantry and in front of the alley-located Sundevich with its engaging interior in a former garage, the modest venue was destined to become a welcomed addition to the community. Located between N and O streets only a half-block north of the Washington Convention Center, this new amenity would transform an abandoned property on the still-ragged commercial corridor.

After meeting with neighbors and reaching agreement on concerns regarding noise and trash pick-up, they discovered that the Logan [Advisory Neighborhood Commission] objected. The commission was suddenly demanding “compliance” with its “policy” requiring early closing times throughout the week in exchange for not protesting the liquor license application and delaying approval.

The rationale? The ANC now demands truncated operating hours for new businesses, even in commercial zones, as standard edict. This stance circumvents citywide regulations through coercive so-called “Voluntary” Agreements.

Confronting a commonplace dilemma, the businessmen couldn’t afford continued delays. When license protests are lodged, either by small groups or ANCs, it takes a minimum of eight months to a year to resolve, costing huge sums.

The well-regarded entrepreneurs had no choice other than to cave. This concession, according to O’Brien, will cost $50,000 in lost annual revenue – a hefty and potentially debilitating sum for a small venture in an industry with tight margins and intensive capitalization requirements.

Ironically, Bagheri alone attended the monthly ANC meeting on Nov. 7 – O’Brien was a Bravo “Top Chef” competitor that evening. He was representing his multiple-award-winning establishment, while Bagheri – no slacker in garnering honorific distinctions for his popular venue – was the duo’s delegate.

Claiming “control” over their fiefdom, commissioners create differing rules for businesses within close competitive proximity while limiting local patron options. Fancying themselves “legislators” rather than the advisory body of their title, they have become sufficiently emboldened to flout abrogation of citywide law within their “territory.”

Newer and more innovative businesses, meanwhile, arguably face even tougher regulations. Take some of the hassles faced by food trucks for example:

Current regulations state that a food truck can only stop to serve if it is “hailed” by customers (similar to an ice cream truck), and that a food truck must close and leave if it has no waiting line of customers. As a result, police can fine and shut down a food truck without a line.

...In addition, under current regulations a vending license holder, typically the owner, must be on a food truck in order to serve customers. For the food truck to operate without the owner, he or she must buy additional vending licenses for employees. As a result, many food trucks are paying for multiple licenses – as many as seven for one business.

Then of course there is the DC government's battle against Uber, a smartphone app that allows users to call what are basically high-end taxis. Here is a taste of what has been going on:

To placate drivers concerned that Uber might undercut them on price, [DC Councilwoman Mary] Cheh is proposing to set the minimum “sedan class” fare at five times the taxi drop rate — currently $3. But that has vexed Uber and many of its customers. While the $15 legal minimum would match Uber’s own current per-trip minimum, the company has recently moved to roll out a lower-priced service in other cities. The $15 floor, Uber argues, would prevent such a service in D.C., thus “handicapping a reliable, high quality transportation alternative so that Uber cannot offer a high quality service at the best possible price.”

Yes, that's right, Cheh favored the government setting prices, which always work out well. Fortunately, after a public backlash -- actively cheer-leaded by Uber and lefty scribes such as Matt Yglesias and James Fallows -- the City Council legitimized the service this month. More instructive, however, is that when confronted with a new service that has been widely praised by consumers for its usefulness, service quality and even its ability to combat racial discrimination, the City Council's first instinct was to place regulations and restrictions on it. Little wonder the company's CEO says he never asks for permission before setting up operations in a city:

“If you put yourself in the position to ask for something that is already legal, you’ll find you’ll never be able to roll out,” [Uber founder and CEO Travis] Kalanick said in an interview. “The corruption of the taxi industries will make it so you will never get to market.”

One can't help but wonder about the fortunes of less well-connected companies, and how many other potentially useful enterprises we never hear about that have been stifled.

Taxis. Anyone who lives in a city is probably going to set foot in a taxi at some point, and thus have another encounter with government regulation. Already the government issues licenses (well, theoretically, as no new licenses have been issued since 2010) determines how much taxis can charge for fares, extra passengers and even luggage handling. Furthermore, the City Council has been kicking around the idea of further expanding its powers so that it can determine what color the taxis should be painted, the features the cars must offer and impose a new surcharge to pay for the costs of the taxi bureaucracy.

Unsurprisingly, this intersection of government and private enterprise has not only threatened consumers through reduced choice and higher costs, but has produced plenty of corruption as well.

Actual taxi color scheme being considered by the DC government

Public transportation: The DC Metrorail and bus systems are sufficiently problem-plagued that there is a blog dedicated solely to documenting its shortcomings (the worst being a crash in 2009 which resulted in nine fatalities), a planned streetcar system continues to suffer from delays and operation of the local airports appear to be a case study in nepotism.

Politicians and bureaucrats. 2012 has seen no shortage of scandal among elected DC officials, with Councilman Harry Thomas Jr. pleading guilty to embezzling more than $350,000 in government funds earmarked for youth sports and arts, Councilman Kwame Brown admitting to lying about his income on bank loan applications as well as a misdemeanor campaign finance violation and two campaign staffers for current Mayor Vincent Gray have also run afoul of campaign finance laws. Councilman Michael Brown owes the IRS $50,000 in unpaid income tax.

With all of the various legal problem, it's perhaps little wonder that this year's ballot featured measures that would prohibit felons from becoming a council member or mayor.

Former mayor Marion Barry, who has faced a host of legal problems over the years and continues to serve in elected office on the City Council, managed to raise racial tensions earlier this year with his pledge to “do something about these Asians coming in, opening businesses, those dirty shops. They ought to go.” He even managed to commit a gaffe in his apology for the remarks. More generally, race was certainly a subtext of the last mayoral race.

Moving down the government food chain, the default disposition of city bureaucrats tends to be one of disinterest, and certainly a sharp contrast from what one encounters at for-profit enterprises such as the Apple store. This is small potatoes, meanwhile, compared with some of the crime that has taken place inside the halls of government. In 2009 a tax manager was found guilty -- along with 10 co-conspirators -- of embezzling $48 million.

Summary. Citizens of Washington DC are exposed to government dysfunction on an almost daily basis. The schools are poor, housing costs are high (in large part due to regulations), innovative and more traditional businesses alike are stymied by government meddling, and some of the most city's prominent figures in government have run afoul of the law. Yet, even with confronted with such regular demonstrations of public sector ineptitude, they continue to vote for politicians that typically favor even bigger government by overwhelming margins.

Sigh.

Related: A couple of interesting features on Tulsa and Colorado Springs, two of the very few cities in the country that reliably vote Republican.

Update: And now The Washington Times reports that the city's firehouses are ridden with various problems including bed bugs, missing smoke detectors, leaking roofs, flooded basements, rodent infestations and inoperable heating or cooling systems.

The Bush tax cuts revisited

2012-12-06T18:55:00.000-05:00

Writing in The Fiscal Times earlier this week, University of Oregon economics professor Mark Thoma makes an interesting claim regarding the Bush tax cuts:

For those who wondered how we would pay for such a large cut to the government’s revenue stream, the Republican prospectus had a remarkable claim. The tax cuts wouldn’t cost us anything. Growth would be so strong that the tax cuts would more than pay for themselves.

But did anyone ever make this claim? I sent a tweet to Thoma asking this question, but he has not responded. No matter, let's take a look at what the tax cuts' chief advocate -- the Bush administration -- thought the likely fiscal impact of the tax cuts would be. Here is an excerpt from the White House budget for fiscal year 2003, which presumably accounted for the impact of the 2001 tax cuts:

Note the first column is revenue, the second column projects outlays and the final column is the resulting surplus or deficit. As can be seen, the budget anticipated revenues of $2.57 trillion for 2007. Now let's a look at the White House budget for FY 2005, which presumably accounted for the impact of both the 2001 and 2003 tax cuts:

This time the picture has shifted slightly, with 2007 revenues projected to drop off to $2.35 trillion -- curious, given Thoma's allegation that tax cut supporters argued they "more than pay for themselves."

Finally, here is the White House budget for FY2009, which provides actual rather than estimated data for 2007:

In fact, we see that revenue for 2007 was $2.57 trillion, higher than what the White House had projected in FY2005 and almost exactly what was anticipated in FY2003. The truly interesting data, however, is not on the revenue side, but spending. In FY2003 the Bush administration estimated spending for 2007 at $2.47 trillion, while actual spending clocked in at $2.73 trillion -- a difference of $260 billion in the wrong direction. Furthermore, had the Bush administration actually spent its projected amount, the federal government would have enjoyed a surplus of $101 billion.

The real story of the last decade is not one of supply-side charlatans foisting fantastical revenue numbers upon an unsuspecting public, but politicians engaged in out-of-control spending.

Congestion pricing

2012-12-02T11:34:00.000-05:00

Depressing that this has not been implemented in NYC. Also very interesting story about the London bread supply in the first few minutes!

Inequality update

2012-11-23T14:07:00.000-05:00

Writing at The American Prospect, Liam Malloy and John Case argue for the implementation of a Pigouvian tax to reduce income inequality, which the article's subheading declares to be "America's most outrageous problem." For those not familiar with the term, a Pigouvian tax is one used to reduce something deemed to be harmful, with pollution often provided as a classic example. The logic at the heart of the tax is, as the authors note, "if you want less of something, tax it."

This is exactly correct, and a point more of our friends on the left should reflect on amidst their cheerleading for higher taxation. Just as a tax on pollution will reduce pollution, so will a medical device tax (such as the one imposed to help fund Obamacare) reduce the production of medical devices, incomes taxes will reduce income, sales taxes will reduce product sales and so on.

Of course, in order to implement a Pigouvian tax one must first identify a problem the tax would help mitigate. Seeking to spell out why income inequality should be a candidate for a Pigouvian tax, the authors list what they believe to be three deleterious effects. The first:

As the economy grows, the rich get nearly all the gains. The United States enjoyed an economic Golden Age from the end of World War II to about 1973. During that time, despite the fact that the top marginal tax rate never dropped below 70 percent (and stood at more than 90 percent until the early 1960s), growth in real gross domestic product (GDP) per capita averaged close to 2.5 percent a year. There is a widely held—and mythical—belief that the United States has been in the midst of a great stagnation ever since. The minuscule increase in the median household income, about 0.4 percent per year, supports this myth.

But the economy has not stagnated. Output per capita has risen more than 90 percent since 1975, or an average of 2.1 percent per year. That’s less than the figure for the Golden Age but not much less. The difference is that since the 1970s, virtually all the gains have gone to those at the top. The average income of the top 1 percent has tripled, while the median household income has increased by less than 20 percent.

The skewing of the income distribution, in short, imposes a cost on the vast majority of people. From 1975 to 2008, the median income of U.S. households rose by a total of $8,000 (in today’s dollars). Had the distribution remained the same as it was in the postwar years, the increase would have been $40,000. Instead of its current level, $50,000, the median income of U.S. households today would be $86,400.

The authors appear to believe it is rather damning that median household incomes have not increased at the same rate as economic growth, but it unclear why it should be regarded as such or any kind of surprise. After all, no one is entitled to a certain slice of GDP, but rather only those who produce it. For example, the authors cite the growth in output per capita in the US, but that does not mean the growth in output has been uniform.

Imagine a village of 10 people, each of whom produces 10 units of output, for 100 units total. Now imagine that two of the villagers adopt some new technology that enables them to double their output to 20, thus pushing up total production in the village to 120 units. While per capita output has grown by 2 units per person, or 20 percent, eight of the villagers are no more productive than before, so why should we expect their income to have grown?

Beyond the theoretical angle, there are more practical problems with this line of argument. Unmentioned by the authors, for example, is the fact that household size has declined since 1973 from 3.0 to 2.6 currently. Thus, not only have incomes grown (albeit modestly), but they are being spread across fewer people.

More important, however, is that income is only a means to an end -- an improved standards of living -- and on that count one would be hard pressed to make the case that society is only 20 percent better off than forty years ago. Almost across the board, be it health care, housing, or even grocery stores, quality has increased. Not only has quality gone up, but many goods are also cheaper. Take for example, the telephone. In 1973, here's what a $35 phone ($175 in 2011 dollars) looked like:

Today, for only $25 more one can purchase (with contract) an iPhone 5 that includes not only the ability to make voice calls from almost anywhere (with long-distance included), but other features such as a camera and video camera, access to a wealth of information, alarm clock, music and even the ability to watch broadcasts over the cellular network in near high-definition quality:

Screen capture from my iPhone

The iPhone is a particularly useful example, because although its development only generated monetary benefits for a relatively small number of people (Apple executives became fabulously wealthy, while stockholders and other Apple employees benefited to lesser extents), literally millions have people have seen their quality of life improved by the device (and millions more by smartphones in general). Although it may not show up in the form of additional income for most people, society is undoubtedly better off.

This story has replayed itself across the economy, with small numbers of individuals gaining disproportionate monetary rewards while society broadly benefits in ways perhaps not captured by median household income. Jeff Bezos has become extremely wealthy through the founding of Amazon.com, while the rest of us benefit by both increasing the range of products available and saving us a trip to the store. John Mackey's founding of Whole Foods has earned him tens of millions of dollars while the rest of society benefits in the availability of improved choices at the grocery store and increased competition that has led other stores to upgrade their own offerings. While we may not directly share in the financial rewards, we have all benefited from the work of these individuals. To say that "the rich get nearly all the gains" is flatly wrong, or at the very least deceptive.

This is not to say there aren't areas where progress has lacked, or life has become more expensive. For example, one big reason why income has shown only middling growth is because of the growing cost of health care, forcing companies to shift money that otherwise would have been used to increase wages to pay higher insurance premiums for employees. The cost of college has also soared, as well as housing in many parts of the country, leaving families and individuals feeling increasingly stretched thin. What this cries out for, however, is not punishing the rich or corporations (recall that the health insurance industry is not particularly profitable), but rather paring back government interventions that promote these trends (the health care sector is rife with government distortions, while housing supply in major cities is frequently held back by regulation).

Finding ways to increase the incomes and standards of living of all citizens is a conversation well worth having, but it is a distinct one from income inequality.

This brings us to the next argument (which seem to echo remarks made by then-Senator Barack Obama in 2008):

Many talented people focus narrowly on getting richer, to the exclusion of activities that might be more beneficial to society. The greater the number of very rich people, and the bigger their share of the pie, the more it seems that getting very rich is both feasible and desirable. For young people, going where the money is becomes more attractive than a career in science, education, or public service. As late as 1986, only 18 percent of Harvard graduates planned any sort of business career. In 2011, the figure was 41 percent, including 17 percent going into finance.

The new incentives affect the behavior of anyone with a decent shot at getting rich. CEOs of large corporations expect astronomical compensation packages. Wall Street executives pursue riskier lines of business in search of higher profits than they could earn through traditional banking or brokerage. Doctors and lawyers have an incentive to train for lucrative subspecialties, leaving a shortage of general practitioners and public defenders. All these brain drains impose costs on everyone else.

Or, just maybe, salaries act as price signals, telling graduates where their talents are most needed. Is there any indication the country suffers from a lack of teachers or bureaucrats? Would the country have been better served if Steve Jobs had opted for a job teaching calligraphy instead of running Apple? If John Mackey had gone to work at the Agriculture Department? Frankly, yet another argument in favor of smaller government is that it would free up smart minds to think of new innovations or businesses, which seems a better use of their talents than dreaming up new regulations.

In any case, where is the evidence that the public sector is having difficulty filling its ranks? If anything, the opposite seems to be occurring:

In 2009 alone, 16 percent more young college graduates worked for the federal government than in the previous year and 11 percent more for nonprofit groups, according to an analysis by The New York Times of data from the American Community Survey of the United States Census Bureau. A smaller Labor Department survey showed that the share of educated young people in these jobs continued to rise last year.

“It’s not uncommon for me to hear of over 100 applications for a nonprofit position, sometimes many more than that, and many more Ivy League college graduates applying than before,” said Diana Aviv, chief executive of Independent Sector, a trade group for nonprofits. “Some of these people haven’t been employed for a while and are happy to have something. But once they’re there, they’ve recalibrated and reoriented themselves toward public service.”

...Renewed interest in public service is visible across the country. Applications for AmeriCorps positions have nearly tripled to 258,829 in 2010 from 91,399 in 2008. The number of applicants for Teach for America climbed 32 percent last year, to a record 46,359. Organizations like Harvard’s Center for Public Interest Careers have been overwhelmed — and overjoyed — with the swelling demand from talented 20-somethings.

The authors are perhaps more on point with their critique of the salaries of doctors, lawyers and Wall Street CEOs, but let's recall that specialists in the medical profession are highly paid because of the incentives provided by Medicare, the law profession is crying out for deregulation and Wall Street is both highly regulated and subsidized by government bailouts. In short, none of these phenomena are the work of the free market.

Again, the authors may well have identified real problems, but it is not at all clear how any of them would be solved by higher tax rates, and in fact actual solutions appears to lie in less government.

We are then brought to the final critique:

As a group, the rich can use money to pursue political power and influence well beyond their numbers. Despite fundamental principles such as one person, one vote, the wealthiest Americans have always wielded disproportionate political influence. Today they can make unlimited, anonymous donations to “super” political action committees. They can play a huge role in financing nearly every campaign for federal office. Senators and representatives, faced with the need to raise an average $9 million (Senate) or $1.5 million (House) for each race, spend up to four hours every day cultivating the well-to-do. Nor is the problem confined to elections.

Generously financed lobbyists do their best to ensure that regulatory and tax policies at every level of government don’t interfere with the opportunity to make—and keep—a ton of money. “Another vicious circle has been set in play,” writes Joseph Stiglitz in his new book The Price of Inequality. “Political rules of the game have not only directly benefited those at the top, ensuring that they have a disproportionate voice, but have also created a political process that indirectly gives them more power.”

Little wonder, then, that disaffected citizens on the right, on the left, and in the middle—whatever their views on inequality—believe that the very rich and organized business interests have hijacked America’s political process. The danger, of course, is that the trend is self-perpetuating. In their book Why Nations Fail, Daron Acemoglu and James A. Robinson show that sustained economic growth depends on open and inclusive political institutions. But when a moneyed elite so dominates the political order, it can rewrite the rules to forestall change and maintain a perch on top of the economic ladder. Acemoglu and Robinson quote Woodrow Wilson, who said during the last period when inequality threatened democracy: “If there are men in this country big enough to own the government of the United States, they are going to own it.”

A few points:

Political views among the country's rich are hardly uniform. While the rich are typically stereotyped as Republicans, there is no shortage of millionaires on the left, ranging from Hollywood to Silicon Valley to individuals such as Warren Buffet and George Soros.

The notion the rich can simply buy their way to election victory has been disproven over and over again.

If the rich are so powerful, why does the US have the highest corporate tax rate in the industrialized world? Do the rich enjoy paying high taxes? Why is the personal income tax rate on the rich higher now than when Reagan left office?

If the rich control government, and thus control the rest of us, isn't that a great argument for reducing the size of government?

Despite the numerous and obvious flaws in the arguments employed by Malloy and Case, at least they attempt a detailed critique. The same cannot be said of a recent New York Times opinion piece by Daniel Altman, whose entire argument against income inequality consists of this:

Whether you’re in the 99 percent, the 47 percent or the 1 percent, inequality in America may threaten your future. Often decried for moral or social reasons, inequality imperils the economy, too; the International Monetary Fund recently warned that high income inequality could damage a country’s long-term growth. But the real menace for our long-term prosperity is not income inequality — it’s wealth inequality, which distorts access to economic opportunities.

Thus, the sum total of evidence presented consists of unspecified IMF research (likely a reference to a paper written by Andrew G. Berg and Jonathan D. Ostry that has attracted considerable attention) and a claim that wealth inequality distorts access to economic opportunities, without any elaboration.

Also writing in the Times earlier this week on income inequality, Eduardo Porter similarly offered up rather thin evidence of its alleged social and economic ills:

This lopsided pattern of development is hurting us, many economists believe. It is undercutting the aspiration that every American should have a fair shot at progress. There is mounting evidence that our vast inequalities may breed instability and blunt the nation’s economic growth.

It's worth noting that the first link provided by Porter only quotes one economist who believes that inequality harms society (Alan Krueger), while the second is much heavier on speculation ("may breed") than evidence, using the word "might" ten times. Like Altman, the link also cites the Berg and Ostry paper, which makes their argument worth exploring in more detail. A relatively short summary of their paper can be found here.

There are at least two important points worth noting: first that Berg and Ostry are fairly equivocal in their findings, using the word "may" or "might" 19 times. Second is that the role of public policy in addressing income inequality is uncertain:

The immediate role for policy, however, is less clear. More inequality may shorten the duration of growth, but poorly designed efforts to reduce inequality could be counterproductive. If these efforts distort incentives and undermine growth, they can do more harm than good for the poor. For example, the initial reforms that ignited growth in China involved giving stronger incentives to farmers. This increased the income of the poor and reduced overall inequality as it gave a tremendous spur to growth. However, it probably led to some increased inequality among farmers, and efforts to resist this component of inequality would likely have been counterproductive (Chaudhuri and Ravallion, 2007).

Still, there may be some win-win policies, such as better-targeted subsidies, better access to education for the poor that improves equality of economic opportunity, and active labor market measures that promote employment.

When there are short-run trade-offs between the effects of policies on growth and income distribution, the evidence we have does not in itself say what to do. But our analysis should tilt the balance toward the long-run benefits—including for growth—of reducing inequality. Over longer horizons, reduced inequality and sustained growth may be two sides of the same coin.

Here's an example of what the authors may be describing: government intervention in the US health care system has served to both artificially reduce the supply of doctors (examples: restrictions on the supply of teaching hospitals, licensing) while at the same time it has also driven up demand for medical services, mainly through subsidies and regulations (tax preferences and Medicare, regulations that certain procedures must be performed by doctors instead of other health care professionals) that encourage higher use of doctors than would otherwise be the case.

The unsurprising result? Bigger salaries for doctors, higher health care costs that act as a de facto tax on worker salaries through increased insurance premiums, and reduced economic growth through health care inefficiencies. In other words, inequality. However, inequality is not the driver of any of the problems described, merely a result. The actual underlying problem is government intervention that pushes up the salary of doctors, exerts downward pressure on the wages of workers and promotes economic inefficiency.

Again, a discussion should be welcomed regarding win-win policy measures that would both increase worker wages -- thus reducing income inequality (assuming the rich do not get richer at an even faster pace) -- and stimulate economic growth, but this is very different than the one favored by the left, which is primarily focused on achieving greater equality by reducing the fortunes of the rich through higher taxes rather than lifting up those on the bottom.

Income inequality continues to be an issue regarded by the left as one of the great plagues of American society, and yet one whose dangers they also struggle mightily to explain.