Ending Currency Manipulation Would Substantially Erase State Jobs Deficits
Last week my colleague, Rob Scott, published a report highlighting the impact of ongoing currency manipulation on employment in the United States. In the report, Scott explained that currency manipulation by U.S. trading partners—including China, Denmark, Hong Kong, South Korea, Malaysia, Singapore, Switzerland and Taiwan—distorts trade flows in two ways. It raises the cost of U.S. exports, and lowers the cost of U.S. imports.
Currency manipulation has cost the U.S. economy millions of jobs, including a disproportionately large share of manufacturing jobs. The impact of these job losses is clearly evident in the Midwest, which suffered significant manufacturing job losses. Further, the displacement of manufacturing jobs not only meant fewer job opportunities, but also the elimination of unionized jobs that pay family-supporting wages. Ending currency manipulation would likely lead to significant growth in the American manufacturing sector, a necessary step to begin rebuilding a strong middle class.
Elderly Women the Most Vulnerable, Social Security the Most Protective
Social Security (and other social insurance programs like Medicare and Medicaid) has significantly helped reduce elderly poverty over the last several decades. The U.S. Census Bureau reported that 15.3 million elderly people would have been in poverty in 2012 without Social Security. That would have meant close to four times more elderly people in poverty. The figure below illustrates how declines in elderly poverty are directly associated with sharp increases in per capita Social Security expenditures—evidence that direct government transfers keep many people from falling below the poverty line.
But Social Security, Medicare and Medicaid—as valuable as they are—do not provide a lavish lifestyle. Most of America’s 41 million seniors live on modest retirement incomes that cover just the costs of basic necessities and support a simple, yet dignified, quality of life. To highlight how official poverty measures may paint too rosy a picture of the living standards of America’s seniors, my colleague Dave Cooper and I showed nearly half of the elderly population in the United States are “economically vulnerable,” defined as having an income that is less than two times the supplemental poverty threshold (a poverty line more comprehensive than the traditional federal poverty line). A data update to that analysis shows that 47.9 percent of the elderly are economically vulnerable.
Camp Plan Shows Once Again that Lowering Tax Rates Shouldn’t Be an Economic Priority
Yesterday, House Ways and Means Committee Chairman Dave Camp (R-MI) released his long-awaited (at least among budget nerds) tax reform proposal. For those used to dealing with GOP fiscal policy proposals in recent years, it was strangely careful and serious. Yet, this proposal still highlighted the excessive importance policymakers attach to “tax reform that lowers rates,” which has been a north star of fiscal policy wonks seemingly since the dawn of time. The idea is that lowering rates will spur economic efficiency, but to make up for revenue lost to lower rates, one must broaden the tax base to which the new, lower rates apply.
Lowering income tax rates, however, reduces revenue so much—especially from wealthy individuals and businesses—that it’s mathematically difficult to make up what’s missing without completely gouging the working and middle classes. This is why Republicans have shied away from the details that would make their top-line tax reform goals work. (They are then pilloried, and rightly so, for ignoring mathematical realities.) It’s easy to lower tax rates; it’s hard to then figure out where the money is going to come from to make up for it. And the payoff in terms of increased growth from all this angst is decidedly modest. Under Rep. Camp’s plan, the federal government would lose more than $1.2 trillion over the next ten years from lower tax rates for individuals and businesses, and another $1.4 trillion by repealing the Alternative Minimum Tax. Here are the good and bad of just some of the provisions that make up for the lost revenue:
NYT Reporters’ Anti-Public Pension Bias Leads to Faulty Conclusions
I love the New York Times. But its reporters’ slant on public employee pensions has been driving me crazy, and the latest story by Mary Williams Walsh and Rick Lyman didn’t help. Walsh has been carrying a vendetta against public pensions for many years, so it is no surprise that the article makes the unsupportable claim that none of the 40 state pension overhauls has “come close to closing their pension gaps quickly enough to keep pace with a rapidly agingand retiring—public work force.” I leave it to the reader to fully decipher that statement, but it seems to reflect the story’s headline, that “Public Pension Tabs Multiply as States Defer Costs and Hard Choices.” It implies that despite the states’ pension overhauls, things are getting worse everywhere because public employees are aging and retiring faster than the financing is improving. It’s surely meant to be alarming, as is the chart of Moody’s Investor Service data showing 13 states with “unfunded pension liability greater than annual revenue.”
Moody’s, itself, tells a different story. Moody’s points out that its data are 20 months old and don’t reflect current balance sheets or the enormous market gains of the last 18-20 months. Moody’s points out that “A run-up in financial markets has helped shrink public pension shortfalls” since June 30, 2012, because “Investment returns provide the lion’s share of the retirement systems’ revenue”:
But fiscal 2012 ended for most states on June 30, 2012, and since then, a run-up in financial markets has helped shrink public pension shortfalls. Investment returns provide the lion’s share of the retirement systems’ revenue, and in 2013, pensions’ holdings reached record amounts.
That could make fiscal 2012 the high-water mark for pension problems that have rocked state governments over the last decade and led to a wave of pension reforms recently, according to Moody’s.
Pension liabilities “for 2012 may reflect a cyclical peak as a result of subsequent strong market returns and a rising interest rate trend,” the rating agency said.”
A Strong Precedent for a Better Accountability System
Education policy in both the Bush and Obama administrations has suffered from failure to acknowledge a critical principle of performance evaluation in all fields, public and private—if an institution has multiple goals but is held accountable only for some, its agents, acting rationally, will increase attention paid to goals for which they are evaluated, and diminish attention to those, perhaps equally important, for which they are not evaluated.
When law and policy hold schools accountable primarily for their students’ math and reading test scores, educators inevitably, and rationally, devote less instructional resources to history, the sciences, the arts and music, citizenship, physical and emotional health, social skills, a work ethic and other curricular areas.
Over the last decade, racial minority and socio-economically disadvantaged students have suffered the most from this curricular narrowing. As those with the lowest math and reading scores, theirs are the teachers and schools who are under the most pressure to devote greater time to test prep, and less to the other subjects of a balanced instructional program.
Detroit’s Bankruptcy Reflects a History of Racism
This is black history month. It is also the month that the Emergency Manager who took political power and control from the mostly African American residents of Detroit has presented his plan to bring the city out of the bankruptcy he steered it into. This is black history in the making, and I hope the nation will pay attention to who wins and who loses from the Emergency Manager’s plan.
Black people are by far the largest racial or ethnic population in Detroit, which has the highest percentage of black residents of any American city with a population over 100,000. Eighty-three percent of the city’s 701,000 residents are black. It continues to be an underreported story that a white state legislature and white governor took over the city and forced it to file for bankruptcy against the will of its elected representatives. It is also underreported that white governors and the white state legislature failed to provide Detroit with its fair share of state tax revenues – a significant contributor to the city’s current financial distress.
Detroit’s bankruptcy plan calls for the near-elimination of the retiree health benefits that city workers earned over the years, as well as drastic cuts in the pensions that retired and current workers have earned and counted on. It is telling, I think, that for the first time since the Michigan constitution was adopted 50 years ago, the governor chose in this case to ignore the Michigan constitution’s guarantee that public employee pension benefits will be paid in full, given that Detroit’s public workforce is majority black and represented by unions that opposed the governor’s election.
America Without Unions
This piece originally appeared on the Huffington Post.
The recent defeat of its effort to unionize workers at Volkwagen’s Chattanooga, Tennessee factory was a crushing blow to the United Auto Workers, and a setback to the embattled U.S. labor movement, which could have used the morale boost of a high-profile victory.
It was also a big loss for the vast majority of Americans who must work for a living, whether they are union members or not. Without a large robust unionized sector, there is little hope that the relentless spread of low-wage work, job insecurity and economic inequality will be reversed.
Labor unions were key to the post-World War II social contract under which the benefits of economic growth were broadly shared. Collective bargaining agreements set industry-wide standards for wages and working conditions, which put pressure on nonunion firms to keep up or face union organizing drives. Politically, unions were the most important force supporting Social Security, Medicare, unemployment compensation, overtime, job safety, progressive taxes and full employment policies that promoted prosperity far beyond their membership.
Misdirection on Assortative Mating and Income Inequality
This is a story about misdirection, how authors contort their analysis to answer a question no one is asking but make it seem as if they are answering an important current question, such as ‘why has income inequality increased?’. The consequence is to be grossly misleading or, worse, to present conclusions that are directly opposite of what one’s data show.
The paper in question is titled “US income inequality and assortative marriages” and written by Jeremy Greenwood, Nezih Guner, Georgi Kocharkov, and Cezar Santos for VoxEU.org. The research relates to an increase in positive assortative mating: “how likely a person is to marry someone of similar educational background. Since education is an important determinant of income, these patterns of matching might have an impact on the economy’s distribution of income.” Basically, if higher income men are now more likely to marry higher income women then household income inequality will grow.
The authors conclude that “rising assortative mating together with increasing labour-force participation by married women [emphasis added by me] are important in order to account for the determinants of growth in household income inequality in the US.” So, right out of the gate, a key influence not trumpeted in the headline (rising labour-force participation by married women) is introduced. But we’ll stick with the findings on assortative mating for now. The authors compare assortative mating in 2005 to that of 1960. The selection of the dates for comparison, 1960 and 2005, determines their story and they choose a misleading one. They show their key finding in the very first graph, presented below, which uses Kendall’s tau statistic to measure the relationship between husband’s and wife’s educational levels. The higher the tau statistic ‘the higher is the degree of positive assortative mating.”
The UAW was Right to Appeal the Election Decision in Tennessee
I was glad to see the United Auto Workers (UAW) file objections with the National Labor Relations Board (NLRB) over the nasty campaign by anti-union Tennessee politicians to affect the results of the union election at Volkswagen last week. It would be so enlightening for the NLRB to question Sen. Corker (R-Tenn.) under oath about his alleged conversations with the “real decision makers” at VW, the supposed source of his threat/promise that voting in the UAW would doom the VW plant’s hopes for expansion. Was Corker lying, or were VW executives breaking their neutrality agreement with the UAW and using Corker to help defeat the union? If he was VW’s secret agent, the election should be set aside.
Is the Retirement Crisis a Mirage? (Part 2)
In a Wall Street Journal op-ed last month, Sylvester Schieber and Andrew Biggs said that census data failed to capture much of the income Americans derive from 401(k) and IRA plans. Though no one denies that the data don’t include some distributions from retirement accounts, the extent of the under-reporting is under dispute, with Biggs and Schieber claiming census data ignore 60% or more of the money that seniors receive.
In an earlier blog post, I noted that Schieber and Biggs may be basing this attention-grabbing claim on Internal Revenue Service measures that count rollovers from one retirement account to another as “income.” At an American Enterprise Institute event today, Paul Van de Water of the Center on Budget and Policy Priorities, who first brought the rollover issue to my attention, asked Schieber whether he based his claims on IRS measures of total or taxable income from retirement plans. Whereas taxable income measures exclude Roth IRA distributions, total income measures include these distributions, but also rollovers. As Federal Reserve and IRS researchers have explained, rollovers are included in some IRS income measures even if taxes aren’t owed on the amounts (and whether or not households report the transactions) because financial service providers report them to the IRS.
So, which measures are Schieber and Biggs using—total or taxable income from retirement plans? Schieber wasn’t able to answer, deferring to a coauthor, Billie Jean Miller, who wasn’t present. This should raise eyebrows, since Schieber has been making the same point for years and Social Security Administration researcher John Woods raised the rollover issue back in 1996.
Without claiming any familiarity with IRS data, it appears to me that Schieber and Miller are using measures of total income from these accounts, at least with respect to pension and annuity income. In Exhibit 5 of their Journal of Retirement article, for example, Schieber and Miller cite an IRS measure of pension and annuity income of $812 billion for 2008. According to summary statistics published by the IRS, total pension and annuity income was $845 billion in 2008, whereas taxable pension and annuity income was $506 billion (all figures have been rounded). Though Schieber and Miller’s figure is somewhat smaller than the IRS measure of total pension and annuity income, the difference could be due to revisions or differences between the internal IRS data and micro-data made available for public use.