Two weeks ago saw  the 50th anniversary of the opening of the first Walmart. And just a week before that, the Federal Reserve released the underlying data on family wealth from the Survey of Consumer Finances (SCF). The SCF is the survey that reported the median wealth of American families (that is, the wealth of that American family that is exactly wealthier than half of all families and less wealthy than half) fell by 38.8 percent between 2007 and 2010.

We have argued previously that Walmart is a useful archetype for trends in the larger American economy over the past three decades. Its enormous size and bargaining power has led to fabulous wealth for its owners (most notably the Walton family), while the compensation it pays its employees is generally low, even by retail standards; and the ubiquity of Walmart stores means that it is effectively the marginal employer in many U.S. counties. And its role as this marginal employer often serves to drive down workers’ wages county-wide.

The three years of wealth data from 2007 to 2010 just provides an extreme example of how the economic fortunes of Walmart’s owners have diverged from those of typical American households. Concretely, between 2007 and 2010, while median family wealth fell by 38.8 percent, the wealth of the Walton family members rose from $73.3 billion to $89.5 billion (note that the 2007 wealth number is slightly larger than was reported at the time—to provide an inflation-adjusted comparison, I converted the 2007 wealth value of $69.7 billion to 2010 dollars using the consumer price index (the CPI-U-RS, to be specific)).

In 2007, it was reported that the Walton family wealth was as large as the bottom 35 million families in the wealth distribution combined, or 30.5 percent of all American families.

And in 2010, as the Walton’s wealth has risen and most other Americans’ wealth declined, it is now the case that the Walton family wealth is as large as the bottom 48.8 million families in the wealth distribution (constituting 41.5 percent of all American families) combined.

It’s hardly a surprise that the economic circumstances of the Walton family and that of most Americans are moving in opposite directions, but some have attempted to quibble with the use of this particular statistic by noting that nearly 13 million American families have negative net worth—meaning that they have outstanding debts greater than the value of their assets. This is a bit of a strange objection—of course, many American families have negative net worth, but this is an economic reality, not a statistical fluke. Read more

In a 2011 briefing paper, I estimated that weak and unequal wage growth accounted for more than half the projected Social Security shortfall that has emerged since 1983. Despite their importance, wages have received much less attention than life expectancy, a relatively minor factor hyped by alarmists like former Senator Alan Simpson, co-chair of President Obama’s Fiscal Commission.

Demographic trends affecting the worker-to-beneficiary ratio are often presented as inexorable, though many are influenced by public policies. Neo-Malthusian arguments exaggerating the challenges posed by a growing dependent (in this case elderly) population are used to argue that social insurance is increasingly unaffordable, ignoring productivity growth and other positive trends while falsely suggesting that policymakers have few alternatives to benefit cuts.

The Social Security system requires periodic adjustments to maintain fiscal balance and keep up with changing times. The only unusual thing about the current situation is the fact that a distant and relatively modest projected shortfall has been labeled a “crisis.” Though there have been 21 contribution rate increases in Social Security’s history, none have been legislated since the Social Security Amendments of 1983 ushered in a period of retrenchment.1

The 2012 Trustees Report puts the 75-year shortfall at just under 2.7 percent of taxable payroll, meaning that an immediate increase in employer and employee contribution rates of 1.4 percentage points (from 6.2 to 7.6 percent) would be more than enough to close the shortfall,2 as would a gradual increase in the contribution rate from 6.2 to 9.4 percent over the 75-year projection period.3 To put this in perspective, average real wages are projected to grow by a cumulative 140 percent in inflation-adjusted terms by the end of this period.4 Thus, an increase in the contribution rate would still leave future workers significantly better off than today’s workers while preventing a further erosion of the Social Security replacement rate, which is already declining from 49 percent in 1980 to 36 percent in 2080 for the prototypical “medium earner” retiring at 65. In contrast, the plan proposed by Simpson and his Fiscal Commission co-chair Erskine Bowles would result in Social Security benefits replacing just 28 percent of wages for medium earners in 2080.5 Read more

Recent days have seen some signs that the technology explanation for poor labor market outcomes for many workers is stirring again (maybe John Quiggin needs to add a chapter to his magnum opus?).

The Center for Economic and Policy Research’s David Rosnick and Dean Baker do a good job stomping on an awfully weak version of this argument put forward by a recent OECD report. Some of their report is wonky, but it’s worth reading and the takeaways are pretty clear:

• The OECD intentionally misses the largest increase in inequality by looking at the 90/10 ratio of wages—but most of the action in income concentration has taken place well above the 90thpercentile
• The OECD’s “technology” variable is the subject of some odd adjustments—and more sensible treatments of it make its influence on measured inequality fade away
• Adding in a variable ignored by the OECD—financial intermediation as a share of the economy—adds significantly to the explanation of rising inequality, as rising financial shares are associated (not shockingly) with increased inequality

What is really dismaying is the degree to which analytical discipline is allowed to collapse so long as one is telling a well-accepted story about inequality. If the same degree of evidence marshaled by this study in the cause of blaming technology was instead put in the cause of blaming, say, de-unionization for the rise in inequality, it would be met by some widespread jeers among economists (as it should be—the OECD technology evidence is weak). But it’s always safe to be conventionally wrong, I guess.

Anyway, check out Rosnick and Baker’s paper for the full scoop.

Robert Samuelson’s Washington Post column today is, to be charitable, baffling. He mostly agrees that Keynesians have it right about what the economy needs today: more stimulus, or fiscal support, or spending, or whatever you want to call it. But in a desire to tell us that it is actually Keynesians’ own fault for why we can’t have it, he blames … John F. Kennedy for destroying the nation’s fiscal norms so completely that we somehow can’t afford economic stimulus five decades later.

To be clear, I buy none of this argument that anything keeps us from pursuing more expansionary policy today except for today’s policymakers (and I particularly don’t buy the part of Samuelson’s argument about some magical and well-defined “threshold” of public debt above which we just can’t afford more stimulus and the economy tanks). And, even if there was some reason to think that rising debt/GDP ratios do hamper future policymakers’ response to recessions, the notion that public debt rapidly shrank as a share of overall GDP during the 1960s really should give Samuelson at least some pause about his thesis.

But even if I did believe that some past president had destroyed the historic norm of fiscal probity that preceded their inauguration, I have to ask: Why Kennedy, when there’s much clearer suspects in our more-recent past? The figure below shows net lending by the federal government for the six quarters before the inaugurations of Kennedy, Ronald Reagan, and George W. Bush, as well as what happened during their two terms in office (why six quarters before? I wanted some measure of the alleged fiscal “norms” they inherited, and the Bureau of Economic Analysis data that the chart is based on starts in the middle of 1959, so this simplified my choice).

Again, I actually think concern about budget deficits per se is way overblown in policy debates (for lots of reasons—for example, the budget is affected by the business cycle, which ran differently for all three presidents compared—though, strikingly, all had recessions early in their terms and saw the economy either back in recession (Bush) or within one (Kennedy) or two years (Reagan) of reentering recession by the time their tenures ended. Oh, and wars—wars affect budget deficits).

But if you’re making the argument that running deficits that are  larger than the historic norms you inherited is some mammoth economic sin, I ask again: Why Kennedy and not Reagan or Bush?

The point of Samuelson’s column is pretty obviously to blame Keynesians for today’s troubles even though they are exactly right about how to solve them.

Republican presidential nominee Mitt Romney is stirring controversy with his equivocation over whether or not the individual mandate in the Affordable Care Act (ACA)—and hence the mandate in his Massachusetts health care reform, the model for much of ACA—is a tax or a penalty. But Romney was unequivocal about one thing in his response to the Supreme Court’s decision to uphold the ACA—and unequivocally dishonest—when he claimed: “ObamaCare adds trillions to our deficits and to our national debt, and pushes those obligations onto coming generations.”

This is patently false, and the former Massachusetts governor should know better. ACA is the most substantial piece of deficit-reduction legislation of the past decade, if not decades. Beyond the first decade, when ACA is gradually being implemented, health reform is projected to lower annual budget deficits by roughly half a percent of GDP, according to the Congressional Budget Office (CBO). Put in perspective, half a percent of projected GDP for 2022 is $125 billion; if ACA is fully implemented, we’re looking at well over $1 trillion of net deficit reduction in the second decade. Passage of ACA was the largest force driving CBO’s dramatic recent improvements in long-term public debt projections: between 2009 and 2010 (pre- and post-ACA enactment), their extended baseline projection for public debt in 2083 was revised sharply downwards from 306 percent of GDP to just 111 percent—a decrease of nearly two-thirds. Since those estimates, ACA is likely to produce even more long-term deficit reduction because the long-term care insurance program (CLASS Act) has been scrapped and some states may be sufficiently principled and foolish to refuse tens of billions of federal dollars for the Medicaid expansion. (Note: neither is a policy success in my book.) Read more

The Obama administration announced yesterday that it has filed a complaint at the World Trade Organization (WTO) with China over its tariffs on large vehicles exported from the United States to China. This is the seventh complaint filed by the administration against China, and the White House noted that “the previous six have all been successful.”1  The Obama administration should be applauded for its continuing support of the U.S. auto industry, and for this action, which will help preserve U.S. jobs supported by about $3 billion of U.S. exports in 2011.

Much more needs to be done to stop unfair trade and industrial policies in China’s auto industry, which the Chinese government has targeted as a “pillar industry,” for development. Between 2001 and 2011, according to a report by EPI Research Associate Usha Haley, “the Chinese auto parts industry has received about $27.5 billion in subsidies.”  U.S. imports of auto parts (including tires) increased more than 600 percent between 2001 and 2011, and are on track to reach $14.5 billion in 2012. The rapid growth of subsidized and unfairly traded auto parts from China puts at risk every job both directly and indirectly supported by the U.S. auto–parts industry. The U.S. auto parts industry directly and indirectly supported 1.6 million jobs in 2009, with jobs at risk in every state.

Adding insult to injury, China continues to manipulate its currency. This magnifies the benefits of subsidies and other unfair trade policies that benefit China’s auto-parts exports.  Currency manipulation artificially reduces the costs of China’s exports and inflates the costs of exports from the United States (and other countries) in China and all other countries where they compete with China.  I estimated last year that a 25-to-30 percent appreciation of China’s yuan and other manipulated Asian currencies would support the creation of up to 2.25 million U.S. jobs, stimulating up to $286 billion in GDP growth (1.9 percent) and reducing federal budget deficits by up to $71 billion per year. Read more

This morning’s release of the June 2012 employment situation report by the Bureau of Labor Statistics marked three years since the official start of the recovery from the Great Recession in June 2009.  That makes this a useful moment to assess how this recovery stacks up against earlier ones, and to identify obvious policy measures that could ameliorate glaring weaknesses in the current recovery.

The figure below shows that while jobs fell much further and faster during the Great Recession than in the previous two recessions (marked by the lines to the left of the zero point on the x-axis), job growth in the current recovery is similar to job growth by this point in the previous two recoveries, just slightly lagging job growth following the recession of 1990-91 and outpacing job growth following the recovery after the 2001 recession.1

Of course, three years into recovery from those recessions, unemployment was not stuck at levels anywhere near as high as today’s 8.2 percent. But it is important to note that it is the historic length and severity of the Great Recession that explains why the economy is so much worse three years into the current recovery than it was three years into the recoveries of the early 1990s and 2000s, and that there is not something atypically weak about the current recovery relative to those earlier ones.2

Further, the most glaring weakness in the current recovery relative to previous ones is the unprecedented public-sector job loss seen over the last three years. The figure below shows that private sector job growth in the current recovery is close to that of the recovery following the early 1990s recession and is substantially stronger than the recovery following the early 2000s recession.

Yet, as the figure below shows, the public sector has seen massive job loss in the current recovery—largely due to budget cuts at the state and local level — which represents a serious drag that was not weighing on earlier recoveries.

How many more jobs would we have if the public sector hadn’t been shedding jobs for the last three years? The simplest answer is that the public sector has shed 627,000 jobs since June 2009.  However, this raw job-loss figure understates the drag of public-sector employment relative to how the economy functions normally. Read more

Imagine going to a fast-food restaurant and unknowingly consuming food contaminated with toxic chemicals. Or buying cooking oil laden with carcinogens. Or purchasing medicine that makes you sick because it contains excessive levels of the heavy metal chromium.

Sadly, these are not hypothetical situations but real problems discovered in recent years in China. The Chinese financial newspaper Caixin Online declares that “these publicized food safety scandals represent only a fraction of [the] unsafe food production practices.” Caixin concludes that food safety in China is “governed by the law of the jungle.”

China’s food safety problems are not limited to small mom-and-pop businesses. The bad fast-food referred to above was the result of a toxic chemical being added to chicken served at McDonald’s and KFC restaurants. The carcinogenic food oil was found in Wal-Mart. A big business is not a guarantee of a safe product.

In the early 20^th century, the United States faced food and drug crises similar to the ones in China today. These crises in the United States led to the creation of the Food and Drug Administration and to dramatic improvements in American health and life expectancy. While the United States still has its share of contaminated food, the rate of problems in the United States is far below that of China. As Caixin states, “the size and severity of the food safety crisis” in China “is unique.” There is less toxic food in the United States, in part, because we have a stronger regulatory and enforcement system.

These days, conservatives regularly condemn regulation, but the fact of the matter is that regulations save lives. Last month, my colleague Ross Eisenbrey illustrated how good Occupational Safety and Health Administration (OSHA) standards save lives in the workplace. Experts in China believe that achieving real food safety there will require much more action and involvement by the Chinese government.

In a column about the Supreme Court’s health care decision today, David Brooks offers up a series of recommendations about how to improve the nation’s health care system that he’s positive are not already in the Affordable Care Act (ACA). It’s worth quoting at length because it’s so revealing:

“Crucially, we haven’t addressed the structural perversities that are driving the health care system to bankruptcy. Obamacare or no Obamacare, American health care is still distorted by the fee-for-service system that rewards quantity over quality and creates a gigantic incentive for inefficiency and waste. Obamacare or no Obamacare, the system is still distorted by the tax exclusion for employer-provided plans that prevents transparency, hides the relationship between cost and value and encourages overspending. … Republicans tend to believe that the perverse incentives can only be corrected if we repeal Obamacare and move to a defined-benefit plan — if we get rid of the employer tax credit and give people subsidies to select their own plans within regulated markets.”

Let’s take these in turn:

“Obamacare or no Obamacare, American health care is still distorted by the fee-for-service system that rewards quantity over quality … inefficiency and waste”

Actually, no. The ACA has introduced pretty sweeping reforms to payment delivery; see the Independent Payments Advisory Board (IPAB), created precisely to engage the issues Brooks raises.

“Obamacare or no Obamacare, the system is still distorted by the tax exclusion for employer-provided plans that prevents transparency…”

Again, no. The ACA does indeed limit the value of this tax exclusion over time. Read more

Social Security is a hybrid between a pay-as-you-go and an advance-funded pension system, with most benefits paid out of current taxes but some potentially paid out of trust fund savings. Under ordinary circumstances, the trust fund serves more like a checking than a saving account, though substantial savings may be amassed in advance of bigger-than-usual outlays like the Baby Boomer retirement. This (mostly) pay-as-you-go design allowed Social Security to start paying out benefits shortly after its inception and helps insulate the system from financial market fluctuations.

Nobel Prize-winning economist Robert Solow highlighted the system’s pay-as-you-go properties in a characteristically simple and elegant model presented at a National Academy of Social Insurance gathering last week. Headlining a panel on the Baby Boomers, Solow framed a discussion in terms of basic economic constraints (math-phobes can skip the equations):

1. Labor Productivity x Hours Worked Per Worker x Active Workers = Gross National Product

2. Gross National Product = Labor Income + Capital Income

3. Labor Income = Active Worker Share + Retiree Share

Where:

Labor Income = Wage x Hours Worked Per Worker x Active Workers

Active Worker Share = Labor Income – Social Security Taxes

Retiree Share = Social Security Benefit x Retirees

With some rearranging, it follows from Equation 3 that:

4. (Social Security Benefit/Wage) = (Active Workers/Retirees) x (Social Security Taxes/Labor Income)

Solow emphasized that most of the factors in his simple model were determined outside the Social Security system, with the obvious exceptions of the first and last terms in Equation 4.1 This suggests that a decline in the worker-beneficiary ratio requires a reduction in benefits, an increase in the effective tax rate, or both. Read more