I’d like to add some thoughts to Charles Blow’s entertaining and informative blog post about Karl Rove and Chrysler’s “It’s halftime in America” Super Bowl ad. The little dust storm over the commercial is fun to watch, and the public’s reaction—which has been overwhelmingly positive—tells me that Americans might be ready, at long last, to appreciate the single most effective economic intervention of the Obama administration, the rescue of the domestic auto industry.

For those who missed it, the commercial (watch below) has Clint Eastwood narrating scenes of the rebirth of Detroit, both the city and its industry, which were weak from decades of decline and, as Eastwood says, knocked down, but not out, by the Great Recession.

Today, the city’s in worse shape than the industry, but the automakers’ new plants, new models, sales revival and new jobs have created a sense of hope for a lot of people who have seen rock bottom. Against all the odds, Chrysler Corporation, which was not just knocked down, but was declared clinically dead by most experts five years ago, had the strongest year-over-year U.S. sales increase in January and continues to gain market share. Ford and General Motors both posted huge profits last year, and GM regained its place as the world’s auto sales leader.

This nearly miraculous, feel-good story has made conservatives dyspeptic. Mitt Romney and most Republicans in Congress opposed the federal government’s loans and restructuring of GM and Chrysler. They were happy to saddle President Obama with the catastrophic job losses that would have resulted. The Center for Automotive Research forecast the loss of 2.5 million jobs and EPI’s Rob Scott estimated the losses would range between 2.5 and 3 million jobs, while Moody’s Analytics’ Mark Zandi estimated the damage at about 1.5 million jobs.

Conservative opponents like Sen. Richard Shelby (R-Ala.), and even Zandi, who supported the rescue plan, predicted that the rescue would end up costing taxpayers upwards of a hundred billion dollars. They assumed the initial loans would not be repaid and would lead to additional loans when the companies failed to meet their sales and revenue targets.¹ They were wrong. Totally, absolutely wrong. Zandi has, at least, been forthright that things turned out far better than he feared.

Nevertheless, because TARP funds were used to save the auto companies, and because TARP is still widely reviled, most Americans opposed the rescue as just another corporate “bailout.” It didn’t help that the Big 3 were unpopular and their executives were tone deaf and overpaid. Add to this mix a right-wing effort to discredit the United Auto Workers and blame it for the industry’s woes, and it’s easy to see why President Obama has had trouble making people understand what a dramatic success his (and George W. Bush’s) policy has been. What should have been a huge re-election asset has been viewed as a liability, even in Michigan and Ohio!

But maybe the public does get it now. If they do, Rove and Fox News will have every reason to choke on a commercial that never mentions the government or Obama but celebrates the fact that a key U.S. industry just might win the second half.

^{¹As EPI’s Robert Scott points out, the rescue made both fiscal and policy sense, even if the loans were never repaid.}

My colleague Josh Bivens is right to call Christina Romer on her failure to note the importance of currency manipulation on the plight of U.S. manufacturing. But, he leaves us with the impression that the story ends there, and that a targeted manufacturing policy is simply a poor second-best reaction to the governing class’ refusal to deal with our overvalued dollar. It’s not. Even if Romer had acknowledged the currency problem, she still wouldn’t have been, as it were, on the money.

Romer dismisses the notion of “special treatment” of manufacturing (a euphemism for industrial policy – the policy that still dare not say its name), as a sentimental effort to turn back the tide of history, which conventional economics wisdom tells us has thrown American goods production into its trash heap. In the same news cycle, Larry Katz of Harvard tells the New York Times that an increase in manufacturing jobs is “implausible.”

But what is really implausible is the notion that America’s creditors will continue to finance our current account deficit forever. The mills of macroeconomic adjustment may grind slowly, but sooner or later—with or without a change in U.S. dollar policy—they will grind away the dollar’s inflated position in the world. Assuming an eventual global recovery, foreign investors will eventually find more profitable ways to invest their money (in their own economies, for example) than to keep lending it to American consumers at low rates and with the increasing risk that they will be paid back in devalued dollars.

At that point, the market will force the dollar down, making us more price competitive. But this will not be costless. Given that a large chunk of what we buy—including most of our oil—comes from abroad, the initial impact will be to raise the cost of living here, undercutting real incomes.

Moreover, time has not stood still. After 30 years of surrendering markets and off-shoring production, Americans no longer dominate the upper reaches of the global supply chains. The world is now full of competitors whose governments will use every possible policy tool to keep, and expand, their share of high value-added markets. So, in the absence of something similar here, our workers will be competing on the basis of cheaper labor costs.

It’s already happening. Two tier wages systems, in which younger workers get paid much less are now standard practice in many American factories. As Rich Trumka said to me a few months ago, “What makes you think that two-tiers could not turn to three?” The Obama administration plays up the General Electric decision to bring the production of a water heater back from China to a plant in Kentucky. What it plays down is that the hourly wage went from $20 to $13 per hour.

Some have criticized President Obama’s proposals as cynical election-year half-measures. They may be right. Still, it is, finally, a step in the right direction. Even with a cheaper dollar, laissez-faire domestic policy is not going to bring back the American Dream.

That’s how the Washington Post fact checker, Glenn Kessler, put it in his review of the following assertion used in the Super Bowl ad (watch below) by the Center for Union Facts*: “Only ten percent of people in unions today actually voted to join the union.”

Kessler dug in to see where that came from and apparently it is an “estimate [of the] the proportion of employees who both would have voted for the establishment of a union at their companies and were still in their jobs.” As Kessler points out, this has no bearing on the extent to which workers currently covered by collective bargaining would vote to maintain collective bargaining. It is as relevant, as Jared Bernstein points out, as “saying Virginia isn’t a state because none of its current residents voted for statehood.”

What are the facts? Richard Freeman (Harvard University) and Joel Rogers (University of Wisconsin) report on page 69 in their book, What Workers Want, that 90 percent of union workers wanted to keep their union based on their answer to the question, “If a new election were held today to decide whether to keep the union at your company, would you vote to keep the union or get rid of it?”

Union workers have many special legal rights and protections. For instance, union workers by law have the right to vote for union officers and any dues increase, initiation fee or assessment. The laws protecting internal union democracy are far stricter than those for corporate governance and shareholder rights. Plus, workers also have clear rights to decertify unions. This ad and this “fact” do not capture what union worker rights are nor even attempt to reflect what union workers’ views are of collective bargaining.

In fact, a much larger share of the non-managerial workforce wants a union than has a union. Freeman wrote in 2007:

“Given that nearly all union workers (90%) desire union representation, the mid-1990s analysis suggested that if all the workers who wanted union representation could achieve it, then 44% of the workforce would have union representation.”

So, if workers could freely have a union when they wanted one, union representation in the United States would be on par with that of Germany.

_{*By the way, the CUF is just a small part of an array of misleading public relations efforts conducted by Richard Berman on behalf of special interests.}

The Tax Policy Center’s new report on the distribution of tax expenditures strengthens the case for increasing tax progressivity and raising needed revenue by ending the preferential treatment of capital income (subject to a 15 percent tax rate versus a top marginal income tax rate of 35 percent). TPC’s analysis looks at seven broad categories of individual income tax expenditures: exclusions, above-the-line deductions, the preferential treatment of capital gains and dividends, itemized deductions, nonrefundable tax credits, refundable tax credits, and other miscellaneous tax expenditures. Guess which category of tax expenditure provides by far the most lopsided benefit to upper-income households?

That would be the way the tax code preferences capital income over wage and salary income, compounded by the heavy concentration of capital income at the top of the earnings distribution. In 2011, the top 1 percent of households by cash income received a whopping 75.1 percent of the benefit from the preferential treatment of capital gains and dividends. The broad middle class—defined here as the middle 60 percent of households by cash income—received only 3.9 percent of that benefit. Upper-income households also do well by tax exclusions and itemized deductions, but the share of these tax expenditures accruing to the top 1 percent of households—at 15.9 percent and 26.4 percent, respectively—don’t come close to the windfall afforded by a 15 percent rate on capital income.

This should come as no surprise if you’ve read about the Buffett Rule and former Massachusetts Gov. Mitt Romney’s 13.9 percent effective tax rate: Capital income is terribly concentrated at the top of the earnings distribution and the preferential tax treatment of capital income even allows some millionaires and billionaires to pay lower effective tax rates than many middle-class households. Indeed, a recent Congressional Research Service report suggested that the tax reforms most consistent with implementing the Buffett Rule would be raising tax rates on capital gains and dividends. Additionally, TPC’s distributional analysis of taxes on long-term capital gains and qualified dividends shows that the top 1 percent of households by cash income (with income above $533,000) will pay 70.5 percent of capital gains and dividends taxes in 2011, contrasted with just 2.3 percent for the broad middle class (with incomes between $17,000 and $103,000).

Recently, the increasing concentration of capital income at the top of the earnings distribution has been the biggest driver of income inequality, followed by changes in tax policy. Since the mid-1990s, the biggest swing in tax rates has been dropping the top capital gains rate from 28 percent to 15 percent and slashing the top rate on qualified dividends from 39.6 percent to 15 percent. Today’s preferential treatment of capital gains is often considered the most regressive feature of the tax code; taxing capital income as labor income would be an extremely progressive way to raise revenue and push against after-tax income inequality.  Eliminating the preferential treatment of capital gains and dividends would raise effective tax rates by 4.5 percentage points for the top 1 percent of households, while raising effective tax rates by 0.1 percentage points or less for the middle class, according to TPC. Doing so would raise substantial revenue from those households best able to contribute to deficit reduction. Measured with interactions, TPC estimates that the preferential treatment of capital gains and dividends cost $77.7 billion in 2011.

Comprehensive tax reform will have to raise more revenue and restore a greater degree of progressivity to the tax code, so that effective tax rates continue to rise with ability to pay. Equalizing the tax treatment of ordinary income and capital income would substantially advance both objectives.

I was happy to see the New York Times‘ online debate about unpaid internships, sparked by the latest lawsuit against a major corporation for exploiting an unpaid workforce. A recent graduate of Ohio State University, Ms. Xuedan Wang, is suing the Hearst Corporation for its failure to pay her during four months of work at Harper’s Bazaar, work that allegedly included directing the work of other interns, in addition to record-keeping and overseeing the pick-up and delivery of fashion samples.

As Steven Greenhouse reported in April 2010, it has become common for profit-making businesses to ignore the minimum wage and overtime laws and employ young workers without compensating them and, as Ms. Wang’s lawyers point out, without paying Social Security taxes, unemployment taxes, or worker’s compensation premiums. This not only deprives the so-called interns of coverage under these important programs, it deprives the trust funds of needed revenue. Four months of minimum wage work would cost a New York employer more than $400 in payroll taxes and several hundred dollars in worker’s compensation premiums.

Despite the magnitude of the tax losses nationwide, few state governments have tackled these illegal unpaid internships, and the federal government has failed to litigate a single enforcement case, although it might have settled enforcement actions without litigation or publicity. Given the hostile budgetary and oversight environment in Congress, I suspect the Labor Department has decided to avoid taking on the corporate interests that profit from this tax avoidance and unpaid labor. The chronically underfunded Wage and Hour Division still does not have a Senate-confirmed administrator, and the Republican members of the House Education and the Workforce Committee have made it clear that they frown on zealous enforcement of the law.

An earlier lawsuit against Fox Searchlight, another profit-making enterprise that exploited unpaid interns while making the movie Black Swan, reveals just how pernicious this practice really is. One plaintiff was a 2009 Wesleyan University graduate, but another was a 42-year old accountant with an MBA. The lesson? Once businesses get away with exploiting young people, it isn’t long before they treat older workers just as badly.

I first saw signs that the unpaid internship had slid far down the greasy slope when the Times and Wall Street Journal reported several years ago that adult dislocated workers, 30-somethings who had held jobs for many years, were reduced to doing significant, skilled work for free as “interns” in for-profit businesses while surviving on unemployment insurance.  Everything was wrong with this: there was no educational component, the “interns” worked for several months without pay, and the employers escaped all of their normal obligations to pay wages and taxes.

Back in 2006, Anya Kamenetz nicely summarized the key ways that unpaid internships damage the labor market and the ability of the 99 percent to earn a decent living. They undermine the meritocracy that allocates jobs and rewards people for their skills and gumption rather than for the wealth of their parents; they depress wages by creating an oversupply of people willing to work not just for low wages, but literally for nothing; they depress expectations and create an over-identification with employers; and – as compared with paid internships — they damage the career prospects of the young people who take them.  More recently, Kamenetz argued that the responsible institutions need to drag the unpaid internship mess out of the shadows and clean it up: “It’s time for employers, in cooperation with the government and colleges, to step up and create higher-quality apprenticeships, paid jobs, and co-op programs to replace the ill-defined, unpaid internship.” Given that many colleges and universities reportedly require students to take an internship before graduation, they do bear some moral responsibility for the educational content and legality of the experience. Apparently, however, they will be reluctant partners in this effort. When the Labor Department issued guidance on the six principles for a legal unpaid internship, a group of university presidents fired off a protest letter to Secretary Hilda Solis. The universities have a cozy deal collecting tuition for semesters in which their students get farmed out as free labor to employers, and they don’t want the government to interfere, no matter what the law requires.

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Oh no, the economy’s “paging Dr. Romer” feature seems to have developed a glitch. For those who don’t know, Mike Konczal suggested the “PDR” feature a while back, noting that, “Anytime someone associated with the Obama Administration, past or present, says something that is probably wrong about the economy in 2011, we break out Christina Romer saying the correct thing in early 2009.”

And it’s true that on the most important questions of the past couple of years, Romer has been admirably correct and as loud as policymakers with real influence are generally allowed to be. This makes her recent column in the New York Times that much more disappointing. The problem starts and ends with the title – which normally isn’t the author’s fault but in this case actually encapsulates her argument pretty well: “Do Manufacturers Need Special Treatment?”

She argues that recent debates about the importance of helping the manufacturing sector (started in large part by President Obama’s calls to do so in the State of the Union address) are essentially about the costs and benefits of providing this “special treatment” to manufacturing.

This is a very odd read of the current situation. The main problem facing U.S. manufacturing today is a value of the dollar that leads to mammoth trade deficits in the sector. This problem in turn stems largely from the policy of many of our important trading partners to peg the value of their currency at levels that insure very large deficits; as well as from our own policy of not doing anything about this unbalanced trade. Correcting this currency misalignment would provide large benefits to U.S. manufacturers, would reduce the foreign debt of the U.S., and would boost living standards in our trading partners. It’s not clear why calling to undertake this extremely obvious policy intervention is akin to arguing for “special treatment for manufacturers.”

And yes, it’s getting old saying this again and again. But, not as old as people debating issues of trade and manufacturing without wrestling with what is by far the most important policy angle of it.

Lastly, just as a data note, Romer repeats what is a very common canard about manufacturing employment: “Unemployment today is high, but not because of a decline in manufacturing. That decline has been going on for 30 years…”

Depends on what you mean by “decline.” Manufacturing as a share of total employment has been shrinking for decades – and this is not necessarily a terrible thing, so long as it simply reflects faster productivity growth in this sector. But, for 35 years, between 1965 and as recently as 2000, manufacturing employment never dipped below 16 million (and never got above 19.5 million), meaning that it was actually quite stable and not in obvious decline. Then, the sector lost 3 million jobs in the 2000 recession and never recovered them, largely because of subsequent very large increases in manufacturing trade deficits. The sector today employs less than 12 million workers:

Is it unreasonable to expect manufacturing to reach the share of overall employment it last attained in 1965 (27 percent – which would be 36 million jobs)? Yes. But, given a real recovery and intelligent exchange-rate policy, is it unreasonable to expect that it could reach its overall employment level of 1965 (around 16.5 million)? Not at all.

And it wouldn’t even require “special treatment.”

And look, Romer knows all of this. See? But given that no administration in recent decades has done anything about chronic dollar overvaluation – a clear policy failure – is it a shock that many have decided to try to advocate for help for manufacturing through other means? Of course not – but surely the right move here is not arguing against help for manufacturing based on a hypothetical that assumes status quo policy is mostly neutral towards the sector. Instead it’s providing those rightly concerned that current policy is damaging the the sector with the strongest arguments to end this damage.

When Indiana Gov. Mitch Daniels signed a “right-to-work” bill into law on Wednesday, working people and unions lost another battle in the relentless war the 1 percent have been waging against the 99 percent. Right to work (RTW) does not guarantee anyone a job. Rather, it makes it illegal for unions to require that each employee who benefits from a union contract pays his fair share of the costs of administering it. By making it harder for workers’ organizations to sustain themselves financially, RTW aims to undermine unions’ bargaining strength and eventually eliminate them.

MORE: See EPI’s recent research on RTW

Twenty-two states—predominantly in the South —already had right-to-work laws, mostly dating from the McCarthy era. But since the Republican sweep of state legislatures in 2010, a coalition of corporate lobbies, right-wing ideologues and conservative operatives have seized the moment to push RTW into traditionally union-friendly parts of the country. They’ve targeted Minnesota, Ohio, Michigan and New Hampshire for their next campaigns.

RTW is sold as a job creation strategy, but as Gordon Lafer and Sylvia Allegretto have shown, it’s a big lie. In fact, it’s all about cutting wages, which is what happens when unions are weakened or eliminated. The Chamber of Commerce is almost honest about this wage-cutting goal: They explain that “unionization increases labor costs,” and therefore “makes a given location a less attractive place to invest new capital.” Unfortunately, workers do get lower wages from RTW, but the jobs never come. As EPI has shown, the impact of RTW laws is to lower average income by about $1,500 a year and to decrease the odds of getting health insurance or a pension—for both union and non-union workers. Yet when Oklahoma (the last state before Indiana to pass RTW) passed RTW in 2001, the jobs never materialized. The number of companies coming into the state—supposed to increase by “eight to ten times”—instead decreased by 30 percent.

Gov. Daniels and his right-wing allies want workers to believe that RTW will be a big draw for companies making relocation decisions, but surveys show it’s irrelevant, ranking 16th on a list of factors small manufacturers consider. And for higher-tech, higher-wage employers, nine of the 10 most favored states are non-RTW, led by liberal, pro-union Massachusetts.

Fifty years ago, Martin Luther King Jr. warned against “false slogans such as ‘right to work’… . [Whose] purpose is to destroy labor unions and the freedom of collective bargaining by which unions have improved wages and working conditions of everyone.”

The U.S. economy has been squeezing the middle class for decades, with wages stagnating and median household income actually falling over the last decade. RTW is a factor in this decline. It’s time to stand up for decent wages and benefits, to stand up for unions, and to stop the RTW virus from spreading any further.

In a study released this week, two Manhattan Institute researchers heralded the “end of the segregated century.” But their report used a measure of segregation that masks important demographic and economic trends. A measure of segregation that is more relevant for policy and more intuitively reasonable reveals that the neighborhood exposure of African Americans to whites is no greater today than it was 60 years ago, and is considerably less than it was in 1940.

In some respects, racial residential segregation continues to get worse, not better. Low-income African Americans are more segregated from upper-income African Americans, leaving more poor black households in “truly disadvantaged” neighborhoods where educational success of children is nearly impossible. And we can also expect segregation to increase, even by the Manhattan Institute’s overly optimistic measure, as the foreclosure crisis forces more black families into more racially homogeneous and poorer neighborhoods.

For more, read this detailed critique of the Manhattan Institute study that EPI published today.

Yesterday, we critiqued an essay by James Q. Wilson on income inequality. Today, it’s New York Times columnist David Brooks’ turn. Brooks presents another defense of the top 1 percent, one that is just plain wrong about income trends and the income divide in America. And if he got his facts from Charles Murray, then Murray is wrong too. I just can’t let this one slide:

“Democrats claim America is threatened by the financial elite, who hog society’s resources. But that’s a distraction. The real social gap is between the top 20 percent and the lower 30 percent. The liberal members of the upper tribe latch onto this top 1 percent narrative because it excuses them from the central role they themselves are playing in driving inequality and unfairness.”

Brooks would have us believe that there’s commonality among the top fifth and the only losers are those in the bottom 30 percent. So, let’s examine how the various slices of the population have fared to see whether: the 1 percent sticks out, whether trends for the rest of the top 20 percent are more closely aligned to the top 1 percent or to the bottom 80 percent, and whether the bottom 30 percent fares differently from the rest, especially the middle. The simple answer is that the top 1 percent enjoyed far superior wage and income growth than every other segment of the population and that the lowest 30 percent does not stick out as faring worse than the broad middle class. The mantra of the top 1 percent and the other 99 percent corresponds to the actual facts, as we have pointed out before. So has the Congressional Budget Office. In this post, I will present data from the end of the 1980s recovery, 1989, until the end of the last recovery in 2007.

Here’s a look at inflation-adjusted hourly wage trends for each decile from 1989 to 2007, using computations of the Current Population Survey, which unfortunately does not allow us to examine the 1 percent—I do so below with other data. For the uninitiated, the 20th percentile is those who earn more than 20 percent of the workforce but less than the other 80 percent.

In terms of wage growth, the bottom 20 percent saw faster growth than the middle, the entire middle from the 30th to the 70th percentiles saw comparable wage growth of about 10 percent, and the best wage growth starts at the 90th percentile and is even better at the 95th percentile (growing 26.7 percent). So, if there’s a divide here, it starts at the upper 10 percent and there’s a great commonality among the bottom 90 percent. By the way, almost all of the wage growth for the bottom 90 percent occurred in the late 1990s boom from 1995 to 2000. Last, there was a period when the fortunes of the bottom 20 percent (not 30 percent) fared far worse than the broad middle, but that was in the 1980s.

But what about the top 1 percent? For that we need to look at Social Security wage data which allows us great detail at the top but not much within the bottom 90 percent. These are inflation-adjusted annual wage trends from 1989 to 2007:

Looks to me like the top 1 percent fared remarkably better than everybody else and that the top 0.1 percent, with 106.5 percent wage growth really distinguished themselves. These wage trends put the top 1 percent with wages 20 times that of those in the bottom 90 percent, up from ratios of 15-to-1 in 1989 and 9.4-to-1 in 1979.

Perhaps Brooks was referring to household incomes and not to individual workers’ wages, so let’s turn to CBO data on income growth (pre-tax) between 1989 and 2007. (CBO provides income levels for each fifth and the top 10 percent, top 5 percent and top 1 percent, and I have deduced the trends for other categories to flesh out the picture).

The income trends for the bottom 95 percent vary but look pretty similar across the bottom 80 percent (from 16.5 in the lowest fifth to 20.2 percent in the fourth fifth, with the middle fifth faring essentially the same as the bottom). If anything sticks out, it’s the 118.5 percent income growth of the top 1 percent, whose incomes grew four times as fast as those in the bottom three-fourths of the group Brooks wants to label privileged—the top fifth. The income divide that Brooks sees does not appear in our world, at least from what we can learn from wage or income data.

It’s not easy to have a week named in honor of a worthy cause, but this week has turned into “Increase and Index the Minimum Wage Week.” In Connecticut, House Speaker Chris Donovan has announced his support for a two-step increase in the state’s minimum wage to $9.75, with indexing after that. In New York, Speaker Sheldon Silver introduced a bill to raise the minimum wage there to $8.50 with indexing after that. And here at EPI, my colleague Mary Gable and I released a paper documenting the positive economic impact of a proposed increase in the Illinois minimum wage. A 2011 proposal to increase the Illinois minimum wage over a four-year period to $10.65 would have put nearly $4 billion in the hands of minimum-wage earners in Illinois, in turn creating approximately 20,000 new jobs (similar forthcoming 2012 legislation would do the same). As if all that wasn’t enough, yesterday we had GOP presidential candidate, Mitt Romney, speaking in favor of indexing the minimum wage.

Of course, this is not a new suggestion. EPI Economist Heidi Shierholz wrote in 2009 that we should “Fix it and Forget it.” And the concept is pretty simple: Rather than having earnings of minimum-wage earners eroded by inflation, let’s put a mechanism in place to ensure that our lowest-paid workers keep up with the increased costs of meeting basic needs. (As seen in the figure, the minimum wage doesn’t have a very good track record of even meeting the federal poverty level, which we know to be a very inadequate measure of what it takes to make ends meet.)

Ten states already have some sort of indexing, including eight states that had automatic increases Jan. 1. Given the disconnect between wages (generally stagnant at the lower end) and both corporate profits and productivity (both doing very well, thank you), it seems that increasing the minimum wage and indexing it to inflation is a very modest proposal. It’s also a small step that can be taken to address the growing income disparity that has drawn so much attention in recent months.