EPI co-founder and board member Robert Reich has a new documentary, open in theaters nationwide today, called Inequality for All. Everyone should go see this important film.

The film explores the growth of economic inequality, and draws heavily on the work that EPI has done over the past 25 years.

In the decades following World War II, workers’ wages by-and-large rose alongside productivity. But since the 1970s, that relationship has broken down. While CEOs and financial executives have seen their pay skyrocket, wages have been flat for ordinary Americans (even those with a college degree) for the past decade. Add to that a minimum wage that has less purchasing power than it did in 1963 and it’s easy to see why Americans are concerned with economic inequality. It’s a challenge that came about thanks to policies set by those with the most economic power, and it’s something that can be fixed.

That’s why earlier this year, we launched inequality.is. The site walks you through how inequality affects you, how it affects the economy, how we created it, and what we can do to fix it. It even features a guest appearance from Robert Reich. (See also this blog post from Elise Gould for more about the site.)

Once you see Inequality for All, come back here for a more in-depth look at how this came about—and what we can do about it:

• A Decade of Flat Wages
• CEO Pay in 2012 Was Extraordinarily High Relative to Typical Workers and Other High Earners
• The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes
• Rising Income Inequality and the Role of Shifting Market-Income Distribution, Tax Burdens, and Tax Rates
• Fix it and forget it: Index the minimum wage to growth in average wages
• Occupy Wall Streeters are right about skewed economic rewards in the United States
• Failure by Design
• Everybody wins, except for most of us

On Twitter, Atrios demanded more talk of the platinum coin as a solution to the looming showdown over the debt ceiling. For those who don’t remember what the platinum coin idea is all about, check this out—a very good explanation of the issue, as well as a link to a good Chris Hayes segment on it.

But the thirty-second version runs like this: currently, to fund governmental activities, the Treasury draws on an account at the Federal Reserve. The account is fed by both tax revenues and the proceeds from selling bonds (debt). But, because the United States has a statutorily imposed limit of how much outstanding debt is allowed, once this limit is reached on issuing new debt, Treasury can no longer sell bonds and deposit these proceeds, and  hence the account at the Federal Reserve will dwindle. By October 17 (current guesstimate) it will be too small to finance that day’s governmental activities. A suggested way around this has been to have Treasury mint a coin (which has to be platinum for a reason too boring to note in depth) with a denomination of $1 trillion, deposit it at the Federal Reserve and, voila, governmental outlays can continue.

It’s true that the idea of minting a trillion dollar platinum coin as a solution to our nation’s problems sounds like something out of the Simpsons. But, the thing to realize is that while it is indeed a phony accounting solution, what it resolves is a phony accounting problem.

Read more

In a recent speech marking the five-year anniversary of the financial crisis, President Obama hailed the falling federal deficit by pointing out that, “our deficits are going down faster than any time since before I was born.” The reduction in the deficit between 2012 and 2013—from 6.8 percent of GDP to 3.8 percent—is the largest deficit reduction in the past 60 years. Contrary to how too many pundits and politicians think about the economy, that’s not a good thing. This rapid contraction in the budget deficit has sucked purchasing power out of the overall economy even while it remains severely demand-constrained following the Great Recession.

The figure below shows the federal deficit, which has been steadily falling relative to GDP since 2009, versus the trend in the output gap, an indicator of how close to full recovery the economy is. The output gap is the difference between what economic output would be if resources were fully employed (potential output) and actual output, expressed as a percent of potential output.  The stagnation in the output gap—which is mirrored by stagnation in the share of working-age adults who are employed since the official recovery began—is caused in large part by the steep contraction in budget deficits.

Read more

Earlier this week I wrote a post with a graph showing just how austere public spending has been in the last 5 years relative to historical episodes of recession and recovery. Paul Krugman coincidentally posted a piece making the same point a couple hours later (which just might have given it a bit more reach).1

This was the graph I posted (which is also in a paper I co-authored with Hilary Wething):

Note that the difference between today’s level of public spending and what would have prevailed had just the normal historical experience following recessions held is absolutely enormous. Had we tracked this normal historical experience we would have about $800 billion more public spending and the economy would be essentially back to pre-recession health.*

Read more

Here’s what we read today. Share interesting articles in the comments!

• The Mismeasure of Poverty (New York Times)
• Cashier or Consultant? Entry Labor Market Conditions, Field of Study, and Career Success (Yale University, pdf)
• Washington Post Beats Up on Disabled Workers, Again (CEPR)
• 5 reasons Republicans should support Janet Yellen (CNN Money)
• How Bad Data Warped Everything We Thought We Knew About the Jobs Recovery (The Atlantic)

Last week, Brad DeLong posted what he called his “Seven Cardinal Virtues Of Equitable Growth.” I (pretty much) applaud them all: manage the macroeconomy; boost public and private investment; shift from value-subtracting industries (health care administration, prisons, finance, carbon energy) to value creating sectors; create a carbon tax; more immigration; obtain more equality of opportunity in 50 years by obtaining substantial equality of result right now; a well-functioning economy will need a larger government (addressing health-care finance, pensions, education finance, research and early-stage development) relative to the private economy than the twentieth century did. But, like many of my colleagues on the center-left, Brad overlooks what I see as the key economic challenge of our time—generating broad-based wage growth.

While Brad buries the goal of equitable wage growth in the grander category of “obtaining substantial equality of result right now,” I think economists and policymakers must explicitly focus on generating broad-based wage growth when discussing income inequality. This issue must be front and center, or we will never generate the policies needed to achieve the broadly shared prosperity we all want.

Read more

It is taken as a given that the annual fiscal policy dramas of the past few years (last year it was the “fiscal cliff,” the year before it was running up against the statutory debt ceiling, and this year it’s debt ceiling again plus the need to pass a “continuing resolution” to fund the federal government over the next year) are “bad for the economy.”

The general idea that these fiscal policy fights have hurt the economy’s recovery from the Great Recession is clearly right. However, far too many people get the story wrong about how these annual fiscal dramas have slowed recovery. In short, it’s not that they introduce damaging “uncertainty.” Rather, it’s that they have led to smaller budget deficits, which have sucked purchasing power out of an economy that remains severely demand-constrained.

This may sound doubly strange—the corrosive impact of “uncertainty” is now essentially an official talking point for the Beltway pundit class, and the most treasured cliché of economic commentary is that reducing the budget deficit is nearly always and everywhere a good thing.

Read more

The Congressional Budget Office released their long-term budget outlook last Tuesday. On the spending side, growth has slowed relative to their previous long-term projection largely because of reduced projected federal health spending on Medicare, Medicaid, CHIP, and the health insurance exchange subsidies. Given that the trajectory of federal spending in coming decades is almost entirely driven by health costs, this is a most welcome change.

On the revenue side, to no one’s surprise, things look considerably worse because of the tax cuts enacted by the American Taxpayer Relief Act (ATRA)—otherwise known as the “fiscal cliff deal”. The 2001 and 2003 tax cuts were made permanent for 99 percent of taxpayers and the alternative minimum tax parameters were indexed to inflation. As a result, CBO projects that by 2038 federal revenues will be about 3.7 percent of GDP lower than previously thought. As Nicole Woo of Center for Economic and Policy Research has pointed out, the latest CBO report suggests strongly that in containing projected long-run deficits, the U.S. has a tax problem, not a spending problem.

An under-appreciated part of this tax problem is the continued tax avoidance (and sometimes outright evasion) by many U.S. multinational corporations. CBO assumes that corporate tax revenues will average 2.2 percent between 2014 and 2023—basically falling from 2.5 percent of GDP in 2015 to 1.9 percent by 2023. After 2023, CBO assumes that corporate tax revenues will remain at 1.9 percent of GDP, which is about what the average was between 1973 and 2012.

But the importance of corporate income tax revenues has steadily fallen since 1946. In the 1950s, corporate income tax revenue was about 4.5 percent of GDP and the average between 1946 and 1986 was 3.2 percent of GDP. If corporate tax revenues are higher by one percent of GDP after 2014, then the deficit would be reduced by about one percent of GDP every year (actually a little more because net interest payments would be slightly lower). Because of the reduced deficits, the debt-to-GDP ratio would be about 5 percent lower in 2040 than CBO’s projection.

A good start toward increasing corporate tax revenues was introduced in the senate yesterday by Senators Levin, Whitehouse, Begich, and Shaheen. The Stop Tax Haven Abuse Act (S. 1533) would close some corporate loopholes and provide measures to combat the corporate use of tax havens to evade paying U.S. taxes.

The results of the 2012 American Community Survey (ACS), released by the U.S. Census Bureau, show the lingering effects of the Great Recession, and further evidence of a recovery that has been both too slow and too tentative. Both median household income levels and overall poverty rates were virtually unchanged in 2012.

Income

Between 2011 and 2012, only a handful of states saw changes in inflation-adjusted median household income, consistent with a national median household income unchanged from 2011 (the increase of  0.1% nationally is not statistically significant). Our EPI colleagues explain clearly why we see this holding pattern in effect: “Given the tight relationship between the health of the labor market and incomes for most households, it is unsurprising that incomes for most households grew only slightly if at all in 2012 after deteriorating between 2007 and 2011.” Until we see significantly more robust job growth than that which has left us with a “jobs deficit” of over 8 million, improved income and poverty data (and improved well-being and economic security for American families in every state) will remain elusive.

Changes to median household income between 2011 and 2012 were statistically significant in only six states. In four of those states—Hawaii (4.8%), Illinois (1.4%), Massachusetts (1.6%), and Oregon (3.3%)—median household incomes grew modestly. In the other two—Mississippi (-1.6%) and Virginia (-2.2%)—incomes dropped slightly. In the remaining forty-four states (and the District of Columbia), median household incomes showed no significant change.1

Read more

The Census released its annual income and poverty report this week, which, among other highlights, calculates the number of people who are kept out of poverty by various government assistance programs. While many of the headline numbers stayed the same, the number of people kept out of poverty by the Supplemental Nutrition Assistance Program (SNAP) increased to an all-time high of 4 million people.1

The data arrived, coincidentally, as the House of Representatives announced it will be voting today to cut SNAP spending by 5 percent over the next 10 years, cutting 3.8 million people from the program by as early as next year. Understanding why SNAP has increased over the last five years helps us understand why it would be irresponsible–indeed cruel and stupid—to cut spending on the program now.

Read more