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DougMacG
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« Reply #1550 on: October 15, 2014, 02:30:44 AM »

This is an important piece IMHO.  Sorry I can't cut and paste well from my phone.
http://m.startribune.com/opinion/commentaries/278857171.html?section=opinion

Related: https://danieljmitchell.wordpress.com/2011/07/15/two-pictures-that-perfectly-capture-the-rise-and-fall-of-the-welfare-state/
« Last Edit: October 15, 2014, 12:03:43 PM by Crafty_Dog » Logged
ccp
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« Reply #1551 on: October 22, 2014, 07:11:22 AM »

I really have to question if it has made health care any better since I am in that field.  So far it is no more than a game of numbers and I honestly don't believe much of what I read anymore.   Too many agendas.

This could go under technology but I thought this thread might be the most fitting place:

http://www.economist.com/news/special-report/21621237-digital-revolution-has-yet-fulfil-its-promise-higher-productivity-and-better
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DougMacG
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« Reply #1552 on: November 10, 2014, 09:55:01 AM »

One more political economic lesson from the cartoon front:

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DougMacG
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« Reply #1553 on: December 07, 2014, 12:38:16 PM »

Famous people caught reading the forum?  This has already been widely reported here.  No one is saying which direction the cause and effect arrow is pointing...

http://news.investors.com/ibd-editorials/120414-729164-income-inequality-is-greatest-in-the-most-liberal-states.htm

Income Inequality Is Greatest In the Most Liberal States

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DougMacG
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« Reply #1554 on: December 10, 2014, 11:35:54 PM »

Refuting liberals is hard work - because their lips just keep moving.

Here is "Forward Progressives" pushing the idea that 5 charts demonstrate what a great economic success the Obama administration has been:
http://www.forwardprogressives.com/5-charts-proving-how-successful-president-obama-been/

(Read progressives as always in quotes.)

Unsurprisingly, there are flies in their ointment.

1.  Progressives compare minor upward results with the depths of the crash (that they caused), not with previously successful periods.

2.  They judge job growth as positive even when most of it was below the level required to break even.

3.  They call it unemployment falling when the real change is a rapidly declining workforce participation rate.  There are more people not working now than ever before.  Even with funny math, the stated unemployment rate is worse than when they took majority power in Washington.

4.  Progressives claim stock gains with the blatant hypocrisy that they would most certainly be criticizing these gains if it was someone else's policies sent the financial gains only to the wealthiest among us.  The rich and powerful gained while the middle declined.  Startup under Obama were like a Neal Young song; they "start off real slow and then fizzle out altogether".

5.  Progressives chart the highest debt added in history to look like a trend line down when in fact their own budgets and forecasts have it going right back up.

6.  Lastly, how do you say Chutzpah?  From the author of Audacity, they claim oil production in the US is way up under Obama!  Yes it is!  Is there one person smart enough to vote that doesn't know that Obama fought against oil production at every turn?

Take a close look at a liberal viewpoint and most often you will find a lie or deception in the first substantive point.  And here is no exception.
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Crafty_Dog
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« Reply #1555 on: December 20, 2014, 11:14:05 AM »

Friday, December 19, 2014
Jaguar Inflation -- A Layman's Explanation of Government Intervention
By Robert Prechter, CMT

I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let's try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyon'’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy.

Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn.

Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don't care if they're free. They can't find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can't afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars -- at best -- returns to the level it was before the program began.

The same thing can happen with credit.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit-production plants all over the country, called Federal Reserve Banks. To everyone's delight, these banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so they lower the price to one percent. People return to the banks to buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit.

Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay the interest on their debt to the banks so the banks can keep offering more credit. If credit stops moving, the economy will stop. So the banks begin giving credit away, at zero percent interest. A few more loans move through the tellers' windows, but then it ends. Nobody wants any more credit. They don't care if it's free. They can't find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can't afford to pay interest on their debts, so many bonds deteriorate to worthlessness. The value of credit -- at best -- returns to the level it was before the program began.

See how it works?

Is the analogy perfect? No. The idea of pushing credit on people is far more dangerous than the idea of pushing Jaguars on them. In the credit scenario, debtors and even most creditors lose everything in the end. In the Jaguar scenario, at least everyone ends up with a garage full of cars. Of course, the Jaguar scenario is impossible, because the government can't produce value. It can, however, reduce values. A government that imposes a central bank monopoly, for example, can reduce the incremental value of credit. A monopoly credit system also allows for fraud and theft on a far bigger scale. Instead of government appropriating citizens' labor openly by having them produce cars, a monopoly banking system does so clandestinely by stealing stored labor from citizens' bank accounts by inflating the supply of credit, thereby reducing the value of their savings.
I hate to challenge mainstream 20th century macroeconomic theory, but the idea that a growing economy needs easy credit is a false theory. Credit should be supplied by the free market, in which case it will almost always be offered intelligently, primarily to producers, not consumers. Would lower levels of credit availability mean that fewer people would own a house or a car? Quite the opposite. Only the timeline would be different.

Initially it would take a few years longer for the same number of people to own houses and cars -- actually own them, not rent them from banks. Because banks would not be appropriating so much of everyone's labor and wealth, the economy would grow much faster. Eventually, the extent of home and car ownership -- actualownership -- would eclipse that in an easy-credit society. Moreover, people would keep their homes and cars because banks would not be foreclosing on them. As a bonus, there would be no devastating across-the-board collapse of the banking system, which, as history has repeatedly demonstrated, is inevitable under a central bank's fiat-credit monopoly.
Jaguars, anyone?
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DougMacG
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« Reply #1556 on: January 24, 2015, 09:29:42 AM »

http://www.realclearpolitics.com/video/2015/01/23/dem_sen_bernie_sanders_the_reality_is_that_real_unemployment_is_not_55_percent.html
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Crafty_Dog
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« Reply #1557 on: January 25, 2015, 05:49:47 AM »

http://www.addictinginfo.org/2014/09/14/15-now-seatac/
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DougMacG
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« Reply #1558 on: January 25, 2015, 01:11:12 PM »


In Seattle, the adoption of a $15 per hour minimum wage begins April 1, 2015.  The legislation will phase-in a $15 per hour minimum wage annually over 3 to 7 years, depending on employer size.
http://www.seattle.gov/council/issues/MinimumWage/default.html

(You were duped, and so was I most of the way through writing a reply!)
-----------------------------------------------------------------------------------------

The question on minimum wage is not how much to pay, but who should decide. 

The journalism here is quite misleading.  This policy is for a little municipality called SeaTac, population 26k located in the overpriced airport area of Seattle Tacoma.  It affects a .007 proportion of the (3.6 million) Seattle metropolitan area.  Airport areas are notoriously over-priced because of a captive audience.  That means the nation should do this??  (Seattle itself is only 18% of the "Seattle" metro area.) 

Alternatives to paying minimum wage workers include installing more labor saving innovations and setting up shop elsewhere.  Neither happens instantly.  From automated gas pumps to automated teller machines to automated french fry cookers, the effects are seen in the longer term. 

Even if you believe in having our all-knowing government meddle in minimum wage law, the correct number for each industry and each location is different.  Note that this experiment is in one city, not a metropolitan area, a whole state, much less a nation.   

You've got to love the thought process of the liberal commentary:  "They forgot the words of wisdom from President Franklin D. Roosevelt, in an address given in Cleveland, Ohio on October 16, 1936  "It is to the real advantage of every producer, every manufacturer and every merchant to cooperate in the improvement of working conditions, because the best customer of American industry is the well-paid worker." 

That of course has absolutely NOTHING to do with the minimum wage situation around the airport.  Maids don't rent rooms at The Ritz or buy many Boeing products!  What they do is end up on public support when jobs disappear.

"The biggest sign that the higher wage did not impact Seatac however comes with the news that the Seatac airport will be undergoing a half-billion dollar renovation and expansion."

Huh?  The public sector expanding means what??  Good grief!  Are these liberal sources coming from Crafty's facebook friends?  )

The minimum wage is entry pay for mostly unskilled work - the bottom wrung of the economic ladder.  The worker is supposed to gain skills and experience and move up the ladder.  But not if the government forces entry level work to be ever more lucrative, or if it causes the elimination of the first step on the ladder for more and more people.

What percent of American households live off of minimum wage with no other support? Almost none.  The average family income of a minimum wage worker is $53,000.
http://www.heritage.org/research/reports/2013/02/who-earns-the-minimum-wage-suburban-teenagers-not-single-parents
http://www.bls.gov/cps/minwage2011.htm

False reporting of a false issue, IMHO.
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Crafty_Dog
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« Reply #1559 on: January 26, 2015, 11:41:29 AM »

Jobs Boom Thanks to Ending Unemployment Benefits Extension
Jan. 26, 2015
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“After a breakthrough year for America, our economy is growing and creating jobs at the fastest pace since 1999,” Barack Obama boasted in his State of the Union address. Indeed, he mentioned “jobs” some 19 times. The trouble is, it’s not his policies that are growing the job market – it’s the end of his policies. Democrats have long claimed that paying people not to work creates jobs, but as Ronald Reagan once quipped, “Our liberal friends … know so much that isn’t so.” According to a new study from the National Bureau of Economic Research, roughly 60% of 2014’s job growth came because Democrats' lavish unemployment benefits were not extended again. The study is by no means the last word on the subject, as there are innumerable factors that go into something so complex as the job market. But as National Review’s Patrick Brennan summarizes: “The general economic consensus has always been that unemployment insurance slightly boosts the unemployment rate. … [W]e still have unemployment insurance, of course, because we want a safety net for people in the event of job loss. That just has to be balanced against the costs that the program imposes on the labor market.” More…

Oh, and by the way, look to Texas for all the jobs. According to American Enterprise Institute’s Mark J. Perry, “It’s a pretty impressive story of how job creation in just one state – Texas – is solely responsible for the 1.169 million net increase in total US employment (+1,444,290 Texas jobs minus the 275,290 non-Texas job loss) in the seven year period between the start of the Great Recession in December 2007 and December 2014. The other 49 states and the District of Columbia together employ about 275,000 fewer Americans than at the start of the recession seven years ago, while the Lone Star State has added more than 1.25 million payroll jobs and more than 190,000 non-payroll jobs (primarily self-employed and farm workers).”
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Crafty_Dog
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« Reply #1560 on: January 26, 2015, 12:26:55 PM »



http://www.nytimes.com/2015/01/26/business/economy/middle-class-shrinks-further-as-more-fall-out-instead-of-climbing-up.html?emc=edit_th_20150126&nl=todaysheadlines&nlid=49641193
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Crafty_Dog
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« Reply #1561 on: January 28, 2015, 10:39:44 AM »

How Student Debt Harms the Economy
In 2010-13, the percentage of younger people owning part of a new business dropped to 3.6% from 6.1%.
Mitchell E. Daniels
Jan. 27, 2015 6:34 p.m. ET
WSJ

To the growing catalog of damage caused by the decades-long run-up in the cost of higher education, we may have to add another casualty. On top of the harm high tuition and other charges are inflicting on young people, and the way their struggles are holding back today’s economy, we must add the worry that tomorrow’s economy will suffer, too.

Ever-escalating tuitions, especially in the past dozen years, have produced an explosion of associated debt, as students and their families resorted to borrowing to cover college prices that are the only major expense item in the economy that is growing faster than health care. According to the Federal Reserve, educational debt has shot past every other category—credit cards, auto loans, refinancings—except home mortgages, reaching some $1.3 trillion this year. Analyses in The Wall Street Journal and by Experian in 2014 show that 40 million people, roughly 70% of recent graduates, are now borrowers. In the class of 2014, the average borrower left with an average load of $33,000.

Even though the debt balloon is a fairly young phenomenon, several damaging results are already evident. Research from the Pew Research Center and Rutgers shows that today’s 20- and 30-year-olds are delaying marriage and delaying childbearing, both unhelpful trends from an economic and social standpoint. Between 25% and 40% of borrowers report postponing homes, cars and other major purchases. Half say that their student loans are increasing their risk of defaulting on other bills. Strikingly, 45% of graduates age 24 and under are living back at home or with a family member of some kind.

Now comes evidence that it’s not just consumer spending that these debts are denting, but also economic dynamism. A variety of indicators suggest that the debt burden is weighing on the engine that has always characterized American economic leadership—and the factor that many have assumed will overcome many structural and self-imposed challenges: our propensity to innovate and to invent new vehicles of wealth creation.

For instance, the U.S., despite its proud protestations about how creative and risk-taking it is, has fallen in multiple world-wide measures of entrepreneurship. A drop in such activity by the young is playing a part. From 2010 to 2013, the Journal reported on Jan. 2, the percentage of younger people who reported owning a part of a new business dropped to 3.6% from 6.1%. Over the past 10 years, the percentage of businesses started by someone under 34 fell to 22.7% from 26.4%. Common sense says that the seven in 10 graduates who enter the working world owing money may be part of this shift.

New data strengthens this hypothesis. Working with the Gallup Research organization, Purdue scholars devised last year’s Gallup-Purdue Index, the largest survey ever of U.S. college graduates. Among its findings: 26% of those who left school debt-free have started at least one business. Among those with debt of $40,000 or more, only 16% had done so.

Controlling the cost of higher education, and expanding access to its undeniable benefits, is first of all a social and moral obligation of those in a position to affect it. Purdue is midway through what is so far a three-year tuition freeze. Coupled with reductions in the costs of room and board and textbooks, these actions have brought down our total cost of attendance for each of the last two years, for the first time on record.

Aggressive counseling of students about the dangers of too much borrowing, and the alternatives available to them, has also helped, as total Purdue student borrowings have dropped by 18% since 2012. That represents some $40 million these superbly talented young engineers, computer scientists and other new workers will have to spend, or perhaps invest in their own dreams of enterprise. At Purdue, where we give students the ownership of any intellectual property they create, and support their attempts to give birth to new products and companies, a significant number of such dreams are likely to become real.

Today’s young Americans have a very legitimate beef with previous generations. A pathetically weak recovery has left millions of them unemployed, underemployed and with falling incomes, not the rising ones their predecessors could expect. And, never forget, they are already saddled with a lifetime per capita debt of some $700,000 (to date) to pay not for debts they incurred, but for those run up in entitlement programs such as Social Security, Social Security Disability and Medicare, explicitly designed to tax the young to subsidize their elders.

For future generations to enjoy the higher living standards America has always promised, nothing matters more than that the U.S. remains a land where miracles of innovation and entrepreneurship happen consistently. As a matter of generational fairness, and as an essential element of national economic success, the burden of high tuitions and student debt must be alleviated, and soon.

Mr. Daniels, the former governor of Indiana (2005-13), is the president of Purdue University.
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Crafty_Dog
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« Reply #1562 on: February 05, 2015, 04:46:59 PM »

Not sure how they can say "has ever been" but the gist of this seems right to me.

http://www.thegatewaypundit.com/2015/02/gallup-ceo-number-of-full-time-jobs-as-percent-of-population-is-lowest-its-ever-been-video/

U6 rate:

http://portalseven.com/employment/unemployment_rate_u6.jsp
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DougMacG
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« Reply #1563 on: March 03, 2015, 09:50:54 AM »

"People often form strong opinions on the basis of weak statistics."  Great followup here to our Elizabeth Warren discussion.  (Did I mention a fact check was needed?)  $20 trillion of income missed in just one category.  The income measure Warren quotes (from Piketty) excludes 40% of income and then she is disturbed by the lack of income.

http://www.wsj.com/articles/alan-reynolds-the-mumbo-jumbo-of-middle-class-economics-1425340903

The Mumbo-Jumbo of ‘Middle-Class Economics’
The statistics used to claim that average incomes have stagnated since 1980 also show stagnation since 1968.
By ALAN REYNOLDS
March 2, 2015 7:01 p.m. ET

In the “Economic Report of the President” released on Feb. 19, the White House’s Council of Economic Advisers defines “middle class economics” primarily by the average income of the bottom 90%. “Average income for the bottom 90 percent of households,” according to the ERP, “functions as a decent proxy for the median household’s income growth.”

This is absurd: The average income for the bottom 90% is not a decent proxy for the median nor even a decent measure of household income. It is instead a roughly fabricated estimate of pretax “market income” reported on tax returns that falls below some threshold for the top 10% ($114,290 in 2013). But this dodgy number does serve as the basis for CEA Chairman Jason Furman ’s assertion a day later on the Vox blog that the U.S. has suffered a “40-year stagnation in incomes for the middle class and those working to get into the middle class.”

The measure has become popular on the left. Sen. Elizabeth Warren (D., Mass.) recently asked an AFL-CIO conference, “Since 1980, guess how much of the growth in income the [bottom] 90% got? Nothing. None. Zero.” NPR displayed the same bottom 90% data and stretched it even further, claiming that “after 1980, only the top 1% saw their incomes rise.”

The source cited in the ERP for the claims about stagnating average incomes is the World Top Incomes Database. The U.S. data come from economists Thomas Piketty and Emmanuel Saez, the same source cited by Sen. Warren and NPR.

Amazingly, these same statistics also show there has been no increase for the “bottom” 90% since 1968. Measured in 2013 dollars, average income of the bottom 90% was supposedly $32,730 in 1968, $32,887 in 1980, $35,326 in 2007 and $32,341 in 2013.

ENLARGE
PHOTO: GETTY IMAGES
This is totally inconsistent with the data the Bureau of Economic Analysis uses to calculate GDP. For example, real personal consumption per person has tripled since 1968 and doubled since 1980, according to the BEA. Are all those shopping malls, big box stores, car dealers and restaurants catering to only the top 10%? The question answers itself.

Instead of the White House concoction, consider the Congressional Budget Office estimates of actual median household income. Measured in 2013 dollars, after-tax median income rose briskly from $46,998 in 1983 to $70,393 in 2008 but remained below that 2008 peak in 2011. The sizable increase before 2008 is partly because the average of all federal taxes paid by the middle fifth has almost been cut in half since 1981—from 19.2% that year to 17.7% in 1989, 16.5% in 2000, 13.6% in 2003 and 11.2% in 2011.

Census Bureau estimates of median “money income,” on the other hand, do not account for taxes, so they miss a major source of improved living standards. They also exclude realized capital gains, public and private health insurance, food stamps and other in-kind benefits. Even so, the Census Bureau’s flawed estimate of median income rose 13.7% from 1984 to 2007 before falling 8% from 2007 to 2013.

Both CBO and Census estimates show only six years of middle-class stagnation, not 40.

The Piketty and Saez data are crucially flawed. The total income reported on individual tax returns, which is the basis of their estimates, is substantially less than any official measure of total income, and the difference keeps getting wider. In their original 2003 study, Messrs. Piketty and Saez mentioned one rapidly expanding source of missing income—disappearing dividends in tax-return data. These were “due mostly to the growth of funded pension plans and retirement savings accounts through which individuals receive dividends that are never reported as dividends on income tax returns.”

The same is true of interest and capital gains accumulating inside such tax-free savings accounts. These have grown to nearly $20 trillion, according to a 2014 report by Tax Foundation economist Alan Cole.

Messrs. Piketty and Saez shrink the total income numbers further by subtracting all transfer payments, such as Social Security and unemployment benefits, and excluding all health and retirement benefits provided by private employers or government agencies. The result, as Brookings Institution’s Gary Burtless noted, is that, “The Piketty-Saez measure [of total income] excluded 24% of NIPA [National Income and Product Accounts] ‘personal income’ in 1970, but it excluded 37% of ‘personal income’ in 2008.” It excluded 40% of personal income by 2011.

Because of their increasingly understated estimates of total income, Messrs. Piketty and Saez estimate that in 2013 the “other 90 percent”—meaning all incomes smaller than $114,290—had an average income of only $32,341. That number is not remotely credible.

According to the CBO, that $32,341 would have been below the $34,000 needed to escape from the poorest fifth of two-person households in 2011, when half of all households earned more than $75,200 before taxes. Even using the Census Bureau’s narrow definition of money income, average income for the middle fifth was $72,641 in 2013, and half of us earned more than $51,939.

In short, the Piketty-Saez average of all incomes below the top 10% is far lower than any official estimate of incomes among the middle fifth of the income distribution. This means their comparisons of cyclical shares of income growth among the top 10% and bottom 90% during booms and busts are invalid. And so too are their estimates of the shares of mismeasured “total income” supposedly received by the top 1%-10%.

People often form strong opinions on the basis of weak statistics, but this “bottom 90%” fable may be the worst example yet. The Economic Report of the President’s description of “middle-class economics” rests on a far-fetched claim that middle incomes have stagnated for four decades rather than from 2008-13—most of these years during the Obama presidency.

Mr. Reynolds, a senior fellow with the Cato Institute, is author of a 2012 Cato paper, “The Misuse of Top 1 Percent Income Shares as a Measure of Inequality.”
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Crafty_Dog
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« Reply #1564 on: March 09, 2015, 09:31:23 AM »

WASHINGTON — With the economy adding nearly 300,000 jobs in February, it’s clear that the labor market is on a roll. And, perhaps surprisingly, there is no group for whom that is truer than Hispanics.

Employment among Hispanics has increased 5 percent over the last 12 months, according to the Labor Department, compared with 3.8 percent for blacks and 1.4 percent for whites. (The last figure partly reflects the rising number of retirements among the aging white population.)

Of all the country’s major racial and ethnic groups, only Hispanics, as of late last year, had returned to their unemployment levels before the recession, according to the recent Economic Report of the President.

Given that roughly half of Hispanic workers are foreign born, that development might seem destined to aggravate nativist tensions in Congress, where Republicans have tried to roll back the president’s executive action on undocumented immigrants.

But, on closer inspection, the trends driving the improving job market for Hispanics are trends most skeptics of immigration would cheer.

The first is a rebound in the construction industry, which is good news for the American economy as a whole, because construction jobs pay above-average wages to low-skill workers.

Just before the recession, about 14 percent of Hispanics, or nearly three million people, were employed in construction. That group then lost about 700,000 jobs, of which only a trickle had returned through 2013.

But 2014 was a bonanza compared with recent years. The construction industry as a whole gained over half a million jobs, about 20 percent of all the jobs created in the United States economy. Of those, 315,000 went to Hispanics. Not surprisingly, the new construction jobs are concentrated in four states — California, Florida, Illinois and Texas — where the Latino population is among the highest in the country.

“Construction was pretty down two, three years ago, but last year was a lot better,” said Oscar Mondragon, the director of the Malibu Community Labor Exchange, which connects laborers with employers throughout the Los Angeles area. “People are feeling better. It’s a more positive mood.”

More broadly, the surge in Hispanic employment reflects an increasingly robust recovery. Economists generally say that the job prospects of lower-skill workers are more sensitive to the economy’s tidal movements than those with better skills, and Hispanics, as a group, tend to be less educated than blacks and whites.

In 2012, according to the Pew Research Center, 49 percent of foreign-born Hispanics age 25 and older, and 19.6 percent of Hispanics in that age group who were born in the United States, lacked a high school diploma. The corresponding number for blacks was 16.6 percent, and 8.5 percent for whites. If Hispanic employment is surging, it’s a decent indication that the recovery has taken hold.

The second reason behind lower Hispanic unemployment is a sharp decline in illegal immigration in recent years, which has reduced the number of workers who might otherwise have turned up in government unemployment statistics.
Continue reading the main story Continue reading the main story
Continue reading the main story

At the recent peak in the mid-2000s, federal agents were apprehending just over one million undocumented migrants a year along the southern border. That number fell by roughly half during the recession, then dribbled to 340,000 in 2011. The collapse in apprehensions of immigrants from Mexico, by far the largest source of undocumented labor, was even sharper.

The reason for the drop was twofold, said Madeline Zavodny, an economist at Agnes Scott College in Decatur, Ga. First, economic conditions in Mexico were improving even as growth in the United States remained sluggish, reducing a crucial incentive to emigrate.

On top of that was a development that should warm the hearts of Tea Party supporters: enforcement. Thanks to the rapid militarization of the border — the number of border patrol agents has increased by two-thirds since 2006 — crossing into the United States is now a far more daunting proposition than before the recession.

“It’s more costly in terms of what you have to pay a coyote, how remote you have to go,” Ms. Zavodny said.

The more aggressive enforcement of immigration laws extends far beyond the border. More than half a million employers now use E-Verify, an Internet-based government service that determines in seconds whether a recent hire is eligible for work in this country. That has effectively reduced the universe of jobs available to undocumented immigrants.

“When a company makes it clear they’re using E-Verify, the whole work force knows,” said Pia Orrenius, an economist who studies immigration at the Federal Reserve Bank of Dallas. “That news spreads like you would not believe.”

Meanwhile, the Secure Communities program that began in 2008 made it easier for the Homeland Security Department to identify and remove undocumented workers, whose fingerprints it received whenever local authorities took an immigrant into custody. The federal government deported hundreds of thousands of people through the program before the Obama administration halted it in late 2014.

Taken together, the story of the last 10 years looks something like the following: A construction boom from 2004 to 2007 led to a corresponding boom in Hispanic employment, with immigrants gaining 1.6 million jobs and native-born Hispanics gaining 800,000, according to Pew. Unemployment then spiked for both groups during the recession, and contributed to a drop in illegal immigration. And because immigration has never really recovered, the recent rebound in construction is primarily benefiting American-born workers.

Sooner or later, of course, the recovery will begin attracting more workers from Latin America, notwithstanding the beefed-up enforcement. Although illegal immigration is still far below its peak, it has begun to tick up again. Excluding unaccompanied minors, apprehensions at the southern border are up 25 percent since they bottomed out in 2011.

But even this is not necessarily a bad thing for American workers, at least not in the long run. Recent research suggests that, over time, an influx of low-skill immigrants allows many native-born workers to perform more sophisticated tasks for better pay. “More construction workers generates the need for more supervisors, more managers to coordinate them, more contractors to give them work,” said Giovanni Peri, an economics professor at the University of California, Davis.

Showdowns between Congress and the president may be zero-sum, in which one side wins only at the other’s expense. But immigration, it turns out, is not.
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DougMacG
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« Reply #1565 on: March 19, 2015, 09:34:32 AM »

Also file under cognitive dissonance of the left.  Somehow, cutting deficit spending from over a trillion every year to mere hundreds of billions per year is defined as "austerity" in this argument, but liberal economic icon Paul Krugman was wrong nonetheless.  Two charts make his point. (Ramesh Ponnuru, National Review) Please read the rest at the link:





http://www.nationalreview.com/article/415394/krugmans-fatal-conceit-ramesh-ponnuru
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DougMacG
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« Reply #1566 on: April 13, 2015, 09:32:29 AM »

Evidence suggests that entrepreneurship is in decline and that U.S. firms are becoming older, more entrenched and less dynamic.

In several studies, economists Robert Litan and Ian Hathaway of the Brookings Institution found that start-ups (firms less than a year old) had fallen from 15 percent of all businesses in 1978 to 8 percent in 2011. Meanwhile, older firms (16 years or more) had jumped from 23 percent of businesses in 1992 to 34 percent in 2011. Their share of jobs was even higher, almost three-quarters of all workers.

What emerges is a portrait of business that, though strikingly at odds with conventional wisdom, is consistent with poor productivity growth. American capitalism is middle-aged. Older firms, conditioned by success, are more rigid. They’re invested, financially and psychologically, in existing markets and production patterns.

We don’t know what explains their slide, though the sheer mass of government regulations is one candidate. Older firms have the lawyers and administrators to cope with the red-tape deluge; many small new firms drown. ... If the economy discriminates against young firms, we will all be paying the price for many years.

http://www.washingtonpost.com/opinions/middle-aged-capitalism/2015/04/12/31263982-dfdb-11e4-a500-1c5bb1d8ff6a_story.html
http://www.brookings.edu/~/media/research/files/papers/2014/05/declining%20business%20dynamism%20litan/declining_business_dynamism_hathaway_litan.pdf
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DougMacG
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« Reply #1567 on: April 20, 2015, 02:40:22 PM »

http://poq.oxfordjournals.org/content/early/2013/09/11/poq.nft025.abstract
http://falcon.arts.cornell.edu/pe52/Ineq_PubOp_ajps_2010.pdf
http://www.nytimes.com/2015/04/15/opinion/has-obamacare-turned-voters-against-sharing-the-wealth.html?_r=0
http://www.newyorker.com/news/john-cassidy/is-support-for-income-redistribution-really-falling
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In a separate matter, Mayor deBlahzio (sp) from the city with the greatest inequality, NYC,traveled to Iowa, the state with the least inequality, to lecture them on what they need to do about this problem, lol.

It is not what other people make that matters.  It is what YOU make, relative to the cost of the things you buy, that matters.

Skewing inequality is the fact that the millions and millions of people entering the country tend to be at the low end of the income spectrum.  That brings down the median even if no one else took a cut in pay or left the workforce.
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« Reply #1568 on: April 23, 2015, 09:07:55 PM »

We were addressing this phony issue here, income inequality, long before Hillary announced she is pretending to make it the centerpiece for her non-existent campaign.  

Income inequality is the economic ladder, it is the freedom to climb, it is the existence of the American economic dream.  A workable ladder requires a first rung, a second, third rung and so on, all in working order and all rungs going up placed within a reasonable and accessible reach from the one beneath it.  All leftist economic policies, one way or another, weaken or remove steps from the ladder.  Their stated goal is to destroy it altogether, and make us all equally poor.

Income inequality in a dynamic economy is a fact, not an issue.  The political question is how badly do we want to hurt the people at the top in order to also hurt the people further down, wanting to climb up.

When you chop off the top of the ladder and knock people down, you also knock out economic activity (GDP and GDP growth) and make it harder for everyone else to rise up.  

When you raise minimum wage law, you are sawing off or weakening the bottom rung of the ladder.  Some will jump and make it up anyway, but many won't and get stuck at the bottom.  Note the sudden spikes in SNAP and SSI, proof that leftist policies of making basic things free and/or subsidized do not help people to lift themselves up.

Imagine the opposite of the income inequality - income equality.  Everyone makes exactly the same whether they work hard, train, grow, gain experience or improve their skills.  The batboy makes the same as the greatest home run hitter, in this Utopian world.  The incentive to achieve, excel or improve is gone.  What a sad existence that would be.  Innovation ends, startups end, GDP growth ends.  Entrenched powers with the best lobbyists and lawyers might still maneuver through the myriad of taxes and regulations and prosper, but everyone else suffers.  Welcome to the path of Obama's America where the chosen successor promises to do more of the same.

Income inequality, the political issue, grew out of the fact that liberals and leftists could not find any other way to attack the rapid economic growth that came out of past tax rate cuts.  They came up with phony measures that completely ignore income mobility - the fact that people improve their job skills, experience and income throughout their working lives and then retire, work less and live off of savings.  The politics of income inequality alarmism worked quite well around 2006 and the leftists took power in America.  (Relly they won because of an unpopular war, but still they won running on this economic platform.)  They took the House and the Senate, then the Presidency.  Then they took a 60 seat control of the Senate.  They ended tax rate cuts.  They passed Obamacare and anything else that they wanted until the economic and political wheels fell off.  They passed a stimulus, shovel ready government jobs, cash for clunkers, took over the auto companies, attacked energy, surrendered from wars and so on.  

They ruled without a whisper of conservative constraint, and what happened?  

Income inequality got worse!  Income mobility got worse.  Entrepreneurialism was stopped dead in its tracks.  Workforce participation collapsed. Safety net program use exploded.  And their answer to it all of this is to do more of the same!  Go figure.
« Last Edit: April 24, 2015, 07:46:24 PM by DougMacG » Logged
Crafty_Dog
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« Reply #1569 on: April 30, 2015, 08:41:29 PM »

http://www.thegatewaypundit.com/2015/04/obama-vs-reagan-big-government-socialism-proves-to-be-as-disastrous-as-expected/
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« Reply #1570 on: May 01, 2015, 05:18:58 PM »

http://www.nationalreview.com/article/417763/when-minimum-wage-hikes-hit-san-francisco-comic-book-store-ian-tuttle
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G M
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« Reply #1571 on: May 01, 2015, 07:24:41 PM »


I am sure straight, white males are somehow at fault.
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Crafty_Dog
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« Reply #1572 on: June 30, 2015, 11:51:06 PM »

Coming home isn’t easy.

Ranir LLC learned that lesson all too well. The company, based in Grand Rapids, Mich., has long used factories overseas to make many of the dental-care products it sells to big retailers like Wal-Mart Stores Inc.

Two years ago, though, Ranir executives were frustrated by the shipping costs and communications hassles associated with a plant in Asia that made replacement heads for one of the company’s most popular electric toothbrushes. Ranir was considering bringing production of the replacement heads to Michigan in 2013 when Wal-Mart, one of the company’s biggest customers, announced an initiative pressing its suppliers to make more goods in the U.S.

That helped seal the decision. Ranir Chief Executive Christine Henisee moved production of the replacement heads to Michigan. But the company knew that for the U.S. operation to be profitable, big changes would have to be put in place to bring down costs.
Journal Report

    Insights from The Experts
    Read more at WSJ.com/LeadershipReport

More from Unleashing Innovation: Manufacturing

    Meet the New Robots
    Opportunities and Challenges for U.S. Manufacturing
    Managing Robots and People
    Google Glass: A Factory Tool
    Getting Manufacturing Policy Wrong

Ms. Henisee says the company had tried shifting some production to the U.S. before. But, she says, is “this is one of the first times that we actually have been able to bring products back in with a manufacturing concept that allows for total cost to be competitive.”

To lower costs, Ms. Henisee told her engineers to design a system that stripped out most of the manual labor. They worked with a German company to develop a machine that works in five steps, from machining the brush-head bristles to inserting a metal pin in the assembled head. The company has two of the machines and expects to make about seven million to eight million refill heads a year to meet current demand, with the capacity to go higher.

Ranir, which mainly makes items that retailers sell under their labels, also needed to redesign the brush head itself. In the new design, which the company is seeking to patent, the parts are more exactly molded to fit with the machines as opposed to the hands of human workers.

The company spent close to $3 million developing and installing the new largely automated system. The U.S. facility is now ramping up production, and the company says the U.S.-made replacement heads will be available in Wal-Mart stores in the coming months. Fewer than a dozen people have been hired for the new operation at the company’s Grand Rapids facility, according to company officials, who declined to say how many workers there were at the previous plant in Asia.

Ranir is building a similar line in Germany for the European market—a project that entails an additional $3 million. Still on the drawing board, Ranir says, is a way to automate packaging of the replacement brush heads.

Mr. Shukla is a reporter for The Wall Street Journal in Chicago. He can be reached at tarun.shukla@wsj.com.
Popular on WSJ

 

 
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DougMacG
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« Reply #1573 on: July 01, 2015, 11:23:18 AM »

The labor cost excuse doesn't work anymore when so much is automated and labor cost differentials are shrinking.  There are tons of existing businesses that could come back to America if the business climate was significantly improved, in addition to a revitalization of startups!
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Body-by-Guinness
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« Reply #1574 on: July 27, 2015, 06:41:46 PM »

Lame idealism annoys me to no end, particularly as anyone who speaks out against useless gestures or feel good folly is usually cast as a big meanie. As such this piece that discusses empiric means of assessing altruism strikes me as an interesting piece:

http://marginalrevolution.com/marginalrevolution/2015/07/doing-good-better.html
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Crafty_Dog
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« Reply #1575 on: August 10, 2015, 03:07:58 PM »

http://dailycaller.com/2015/08/10/report-seattle-restaurants-suffer-worse-job-loss-since-the-great-recession/
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DougMacG
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« Reply #1576 on: August 11, 2015, 08:18:11 AM »

In tennis, we call that - an unforced error.  Who could have seen this coming?  (Everyone who reads the forum.)

Minimum wage law does not require an employer to pay an employee more.  It bans employers from keeping employees whose worth is less.

To continue this experiment for electorate learning purposes, I hope their reaction is to raise it to $20.  See what happens next.

It reminds me of when they passed a surcharge tax on yachts, giving millionaire-billionaire yacht owners an excuse to not buy a new boat and boat makers less demand.  As a result they started laying off shipbuilders in Maine, in the then-Senate majority leader's home state.  The tax got repealed quickly.
https://news.google.com/newspapers?nid=2457&dat=19910104&id=8LBJAAAAIBAJ&sjid=yw4NAAAAIBAJ&pg=3974,1121388&hl=en
« Last Edit: August 11, 2015, 09:47:48 AM by DougMacG » Logged
Crafty_Dog
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« Reply #1577 on: August 11, 2015, 09:35:12 AM »

"Minimum wage law does not require an employer to pay an employee more.  It bans employers from keeping employees whose worth is less."

Excellent articulation.
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DougMacG
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« Reply #1578 on: August 11, 2015, 08:18:57 PM »

"Minimum wage law does not require an employer to pay an employee more.  It bans employers from keeping employees whose worth is less."

Excellent articulation.

Thanks Crafty.  Other than perhaps Thomas Sowell on "Basic Economics", just saying the truth that no one else seems to be saying.

It's almost an oversight by the governmentists that they don't require employers to hire employees.  At this point they only put rules on everything after they are hired.

Here's this:

Wendy’s To Switch To Self Ordering And Automation To Avoid $15/hr Wage hike
http://govtslaves.info/wendys-to-switch-to-self-ordering-and-automation-to-avoid-15hr-wage-hike/
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DougMacG
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« Reply #1579 on: September 01, 2015, 11:04:27 AM »

Could also go under Cog Diss of the left.  They have no economic argument that is not based on a snipe hunt called fighting income inequality.  The question is how best to counter them?

A few other links first, then a current article running in Commentary Magazine:

The Left gets the facts wrong on economic and racial disparities
http://www.nationalreview.com/article/368952/inequality-fallacies-thomas-sowell

Bernie Sanders’ Inequality Fallacies
http://dailycaller.com/2015/07/15/bernie-sanders-inequality-fallacies/

http://www.wsj.com/video/opinion-the-top-three-income-inequality-fallacies/F274CC17-EA73-4FB4-949F-F10FACC090F3.html

Measured Inequality: Fallacies and Overstatements
http://economics21.org/commentary/measured-inequality-fallacies-and-overstatements

http://www.americanthinker.com/articles/2014/01/beating_the_income_inequality_drum_3.html

http://mic.com/articles/12319/6-myths-about-income-inequality-in-america

https://mises.org/library/why-larry-summers-doesn%E2%80%99t-understand-economic-inequality

http://spectator.org/articles/57043/obamas-inequality-fallacies
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The Redistribution Fallacy
https://www.commentarymagazine.com/article/the-redistribution-fallacy/

09.01.15 by James Piereson

Hillary Clinton launched her presidential campaign last spring by venturing from New York to Iowa to rail against income inequality and to propose new spending programs and higher taxes on the wealthy as remedies for it. She again emphasized these dual themes of inequality and redistribution in the “re-launch” of her campaign in June and in the campaign speeches she delivered over the course of the summer. Clinton’s campaign strategy has been interpreted as a concession to influential progressive spokesmen, such as Senators Elizabeth Warren and Bernie Sanders, who have loudly pressed these redistributionist themes for several years in response to the financial meltdown in 2008 and out of a longstanding wish to reverse the Reagan Revolution of the 1980s. In view of Clinton’s embrace of the progressive agenda, there can be little doubt that inequality, higher taxes, and proposals for new spending programs will be central themes in the Democratic presidential campaign in 2016.

The intellectual case for redistribution has been outlined in impressive detail in recent years by a phalanx of progressive economists, including Thomas Piketty, Joseph Stiglitz, and Paul Krugman, who have called for redistributive tax-and-spending policies to address the challenge of growing inequalities in income and wealth. Nobel Laureate Robert Solow, of MIT, put the matter bluntly last year in a debate with Harvard’s Gregory Mankiw, saying that he is in favor of dealing with inequality by “taking a dollar from a random rich person and giving it to a random poor person.”

Public-opinion polls over the years have consistently shown that voters overwhelmingly reject programs of redistribution in favor of policies designed to promote overall economic growth and job creation. More recent polls suggest that while voters are increasingly concerned about inequality and question the high salaries paid to executives and bankers, they nevertheless reject redistributive remedies such as higher taxes on the wealthy. While voters are worried about inequality, they are far more skeptical of the capacity of governments to do anything about it without making matters worse for everyone.

As is often the case, there is more wisdom in the public’s outlook than in the campaign speeches of Democratic presidential candidates and in the books and opinion columns of progressive economists. Leaving aside the morality of redistribution, the progressive case is based upon a significant fallacy. It assumes that the U.S. government is actually capable of redistributing income from the wealthy to the poor. For reasons of policy, tradition, and institutional design, this is not the case. Whatever one may think of inequality, redistributive fiscal policies are unlikely to do much to reduce it, a point that the voters seem instinctively to understand.

One need only look at the effects of federal tax-and-spending programs over the past three and a half decades to see that this is so. The chart opposite this page, based on data compiled by the Congressional Budget Office, displays the national shares of before- and after-tax income for the top 1 and 10 percent of the income distribution from 1979 through 2011, along with the corresponding figures for the bottom 20 percent of the income distribution. For purposes of this study, the Congressional Budget Office defined income as market income plus government transfers, including cash payments and the value of in-kind services such as health care (Medicare and Medicaid) and cash substitutes such as food stamps. The chart thus represents a comprehensive portrait of the degree to which federal tax-and-spending policies redistribute income from the wealthiest to the poorest groups and to households in between.

The chart illustrates two broad points. First, the wealthiest groups gradually increased their share of national income (both in pre- and after-tax and transfer income) over this period of more than three decades. Second, and more notable for our purposes, federal tax and spending policies had little effect on the overall distribution of income.

Across this period, the top 1 percent of the income distribution nearly doubled its share of (pre-tax and transfer) national income, from about 9 percent in 1979 to more than 18 percent in 2007 and 2008, before falling back after the financial crisis to 15 percent in 2010 and 2011 (some studies suggest that by 2014 it was back up to 18 percent). Meanwhile, the top 10 percent increased its share by one-third, from about 30 percent in 1979 to 40 percent in 2007 and 2008, before it fell to 37 percent in 2011. Through all this, the bottom quintile maintained a fairly consistent share of national income.

Many will be surprised to learn that the federal fiscal system—taxes and spending—does not do more to reduce inequalities in income arising from the free-market system. Yet there are perfectly obvious reasons on both the tax and the spending side as to why redistribution does not succeed in the American system—and probably cannot be made to succeed.

The income tax yields revenues to the government through two main sources: progressive taxes on ordinary income (salaries and wages) and taxes on capital gains (with the latter taxed at somewhat lower rates to encourage investment). For most of this period, taxes on capital gains have yielded less than 10 percent of total income taxes and about 4 percent of total federal revenues. In terms of the income tax, most of the action is in taxes on ordinary income.

The highest marginal income-tax rate oscillated up and down throughout the 1979–2011 period. It began in 1979 at 70 percent during the Carter presidency. It fell first to 50 and then to 28 percent in the Reagan and Bush years. It rose to 39.6 percent in the 1990s under the Clinton presidency, and went down again to 35 percent from 2003 to 2010. It is now back up to 39.6 percent. The highest rate on capital gains moved within a narrower band, beginning at 28 percent in 1979 and falling as low as 15 percent from 2005 to 2011. The highest rate is currently 23.8 percent.

Over this period, regardless of the tax rates, the top 1 percent of the income distribution lost between 1 and 2 percent of the income share after taxes were levied. In 1980, that group claimed 9 percent of before-tax income and 8 percent of after-tax income. In 1990, the figures were 12 percent before tax and 11 percent after tax. In 2010, the figures were 15 percent before and 13 percent after.

The top 10 percent of the income distribution generally lost between 2 and 4 percent of its income share after taxes were levied. That is probably because those households take a greater share of their income in salaries rather than capital gains compared with the wealthiest Americans.

At the other end, the poorest quintiles gained almost nothing (about 1 percent on average) in income shares due to cash and in-kind transfers from government. In 2011, for example, the poorest 20 percent of households received 5 percent of (pre-tax) national income, and 6 percent of the after-tax income.

Many in the redistribution camp attribute this pattern to a lack of progressivity in the U.S. income-tax system; a higher rate of taxation on the wealthy should solve it, they think. But the United States is already a highly taxed country with a highly progressive tax rate. Indeed, income taxes in the United States are at least as progressive as those in many other developed countries. The highest marginal rate in the States was 35 percent, from 2003 to 2012; today it is 39.6 percent for top earners—not far out of line with those of America’s chief competitors, including Germany, France, the United Kingdom, and Japan, where the highest marginal rates range between 40 and 46 percent.

A 2008 study published by the Organization for Economic Cooperation and Development found that the United States had the most progressive income-tax system among all 24 OECD countries measured in terms of the share of the tax burden paid by the wealthiest households. According to the Congressional Budget Office, the top 1 percent of earners paid 39 percent of the personal income taxes in 2010 (while earning 15 percent of the country’s overall before-tax income) compared with just 17 percent in 1980 and 24 percent in 1990. The top 20 percent of earners paid 93 percent of the federal income taxes in 2010 even though they claimed 52 percent of before-tax income. Meanwhile, the bottom 40 percent paid zero net income taxes—zero. For all practical purposes, those in the highest brackets already bear the overwhelming burden of federal income tax, while those below the median income have been taken out of the income-tax system altogether.

There is a more basic reason that the tax system does not do more to redistribute income: The income tax is not the primary source of revenue for the national government. In 2010, the federal government raised $2.144 trillion in taxes, with only 42 percent coming from the individual income tax. Forty percent came from payroll taxes, 9 percent from corporate taxes, and the rest from a mix of estate and excise taxes. Since the early 1950s, the national government has consistently relied upon the income tax for between 40 and 50 percent of its revenues, with precise proportions varying from year to year due to economic conditions. For several generations, progressive reformers have looked to the income tax as the instrument through which they aimed to take resources from the rich and deliver them to the poor. But in reality, in the United States at least, the income tax is not a sufficiently large revenue source for the national government to do the job that the redistributionists want it to do

And here’s the rub: Payroll taxes fall more heavily upon working- and middle-class wage and salary income earners than upon the wealthy, whose incomes come disproportionately from capital gains or whose salaries far exceed the maximum earnings subject to those taxes. In 2010, the wealthiest 1 percent paid 39 percent of income taxes but just 4 percent of payroll taxes. The top 20 percent of earners paid 93 percent of the nation’s income taxes but just 45 percent of payroll taxes. Meanwhile, the middle quintile paid 15 percent of all payroll taxes—but just 3 percent of income taxes. In other words, the more widely shared burdens of the payroll tax tend to mitigate the progressive effects of the income tax.

An increase in the top marginal tax rate from 39.6 to, say, 50 percent might have yielded around $100 billion in additional revenue in 2010.(This assumes no corresponding changes in tax and income strategies on the part of wealthy households and no negative effects on investment and economic growth, which are risky assumptions.)

That would have been real money, to be sure, but it would have represented only about one half of 1 percent of GDP (using 2010 figures) or less than 3 percent of total federal spending. This would not have been enough to permit much in the way of redistribution to the roughly 60 million households in the bottom half of the income scale.

Turning to the spending side of fiscal policy, we encounter a murkier situation because of the sheer number and complexity of federal spending programs. The House of Representatives Budget Committee estimated in 2012 that the federal government spent nearly $800 billion on 92 separate anti-poverty programs that provided cash assistance, medical care, housing assistance, food stamps, and tax credits to the poor and near-poor. The number of people drawing benefits from anti-poverty programs has more than doubled since the 1980s, from 42 million in 1983 to 108 million in 2011. The redistributive effects of these programs are limited, however, because most funds are spent on services to assist the poor and only a small fraction of these expenditures are distributed in the form of cash or income.

As it turns out, most of the money goes not to poor or near-poor households but to providers of services. The late Daniel Patrick Moynihan once tartly described this as “feeding the horses to feed the sparrows.” This country pays exorbitant fees to middle-class and upper-middle-class providers to deliver services to the poor.

Why have matters devolved in this way? The American welfare state was built to deliver services rather than incomes in part because the American people have long viewed poverty as a condition to be overcome rather than one to be subsidized with cash. Many also believe that the poor would squander or misspend cash payments and so are better off receiving services and in-kind benefits such as food stamps, health care, and tuition assistance. With regard to aid to the poor, Americans have built a social-service state, not a redistribution state.

Social security is the only substantial federal program that transfers money income from one group to another, in this case from workers and employers to retirees. It is by far the largest of all federal programs, claiming $850 billion—24 percent—of the federal budget in 2014. It is paid for by a payroll tax split equally between employees and employers. As of 2014, about 59 million Americans were collecting benefits under Social Security, with an average benefit of $1,260 per month. Social Security has a progressive benefit formula and contains a feature (Supplemental Security Income) that provides cash benefits to elderly, blind, or disabled persons with incomes below the poverty line. Nevertheless, in spite of these features, it was designed to provide income for retirees, not to redistribute income from the wealthy to the poor, and it continues to function in this way.

The National Bureau of Economic Research has concluded that the program transfers income in various complex ways but does not transfer it from the rich to the poor. As one NBER study bluntly stated: “Social Security does not redistribute from people who are rich over their lifetime to those who are poor. In fact, it may even be slightly regressive.” This is partly because wealthier recipients tend to live longer than others and partly because they are more likely to have non-working spouses also eligible to collect benefits.

Medicare and Medicaid, two other expensive programs that together claim nearly 25 percent of the federal budget, provide important health-care services to the elderly and the poor—but no actual income. The flow of money through these health-care programs, more than $850 billion in federal funds in 2014 (plus another $180 billion in state funds for Medicaid), goes mainly to hospitals, nursing homes, pharmaceutical companies, doctors, insurance companies, and health-maintenance organizations. Both programs have been plagued by fraud and corruption since their origins in 1965 because some doctors, nursing-home entrepreneurs, and other providers have sought to manipulate the system for financial advantage and in many cases have succeeded all too well. No one has ever attempted a study of the redistributive aspects of the flow of funds from Medicare and Medicaid, but one surmises from the nature of these payments that most of the money goes to those in the upper reaches of the income distribution.

The federal government does provide cash assistance to the poor and near-poor through two programs. The first is Temporary Assistance to Needy Families (TANF, popularly known as welfare), which currently provides cash benefits to about 4.5 million households at a cost of $17 billion per year to the federal government and about $14 billion (in 2014) to various state governments. The second is Supplemental Security Income, which provides cash benefits to the disabled poor in 8.5 million households at a cost of about $50 billion per year to the federal government. These numbers work out to about $7,000 (on average) per year per household under TANF and $6,000 per year per household under SSI, in each case around half of the average benefit under Social Security.

Lower-income working families are also eligible to receive rebates on payroll taxes through the Earned Income Tax Credit. The House Budget Committee estimated that 28 million taxpayers took advantage of this program in 2011, at an estimated cost of $60 billion to the federal government in rebated taxes (with the average family with children receiving
$2,900 in tax rebates).

And so, of the $800 billion spent on poverty programs in 2012, less than $150 billion was distributed in cash income, if one includes as cash benefit the tax rebate under the EITC. That is a grand total of 18 percent of the whole. The rest was spent on services and in-kind benefits, with the money paid to providers of various kinds, most of whom have incomes well above the poverty line.

With respect to the recipients of federal transfers, the CBO study reveals a surprising fact: Households in the bottom quintile of the income distribution receive less in federal payments than those in the higher income quintiles. Households in the bottom quintile of the income distribution (below $24,000 in income per year) received on average $8,600 in cash and in-kind transfers. But households in the middle quintile received about $16,000 in such transfers. And households in the highest quintile received about $11,000. Even households in the top 1 percent of the distribution received more in dollar transfers than those in the bottom quintile. The federal transfer system may move income around and through the economy—but it does not redistribute it from the rich to the poor or near-poor.

It is well known in Washington that the people and groups lobbying for federal programs are generally those who receive the salaries and income rather than those who get the services. They, as Senator Moynihan observed decades ago, are the direct beneficiaries of most of these programs, and they have the strongest interest in keeping them in place. The nation’s capital is home to countless trade associations, companies seeking government contracts, hospital and medical associations lobbying for Medicare and Medicaid expenditures, agricultural groups, college and university lobbyists, and advocacy organizations for the environment, the elderly, and the poor, all of them seeking a share of federal grants and contracts or some form of subsidy, tax break, or tariff.

This is one reason that five of the seven wealthiest counties in the nation are on the outskirts of Washington D.C. and that the average income for the
District of Columbia’s top 5 percent of households exceeds $500,000, the highest among major American cities. Washington is among the nation’s most unequal cities as measured by the income gap between the wealthy and everyone else. Those wealthy individuals did not descend upon the nation’s capital in order to redistribute income to the poor but to secure some benefit to their institutions, industries, and, incidentally, to themselves.

They understand a basic principle that has so far eluded progressives: The federal government is an effective engine for dispensing patronage, encouraging rent-seeking, and circulating money to important voting blocs and well-connected constituencies. It is not an effective engine for the redistribution of income.

James Madison wrote in the Federalist Papers that the possession of different degrees and kinds of property is the most durable source of faction under a popularly elected government. Madison especially feared the rise of a redistributive politics under which the poor might seize the reins of government in order to plunder the wealthy by imposing heavy taxes. He and his colleagues introduced various political mechanisms—the intricate system of checks and balances in the Constitution, federalism, and the dispersion of interests across an extended republic—to forestall a division between the rich and poor in America and to deflect political conflict into other channels.

While Madison’s design did not succeed in holding back the tide of “big government” in the 20th century, it nevertheless proved sufficiently robust to frustrate the aims of redistributionists by promoting a national establishment open to a boundless variety of crisscrossing interests.

The ingrained character of the American state is unlikely to change fundamentally any time soon, which is why those worried about inequality should abandon the failed cause of redistribution and turn their attention instead to broad-based economic growth as the only practical remedy for the sagging incomes of too many Americans

James Piereson is a senior fellow at the Manhattan Institute
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