The Congressional Budget Office recently released a comprehensive report on income distribution and inequality trends of the last three decades. The report was widely viewed as an affirmation that the Occupy Wall Street movement’s concern with the distribution of economic rewards is well-founded.

Strikingly, House Budget Committee Chairman Paul Ryan (R-Wisc.) interpreted the report as an affirmation that his budget policy wish list is a panacea for the societal challenges of income inequality and economic mobility. The House Budget Committee Majority Staff’s 17-page rebuttal dodges the broad takeaway of CBO’s report by distinguishing between economic mobility and absolute well-being versus relative inequality, but Ryan’s own budget proposals belie this distinction.

As Ezra Klein points out, Ryan’s report presents a false dichotomy between closing the income gap (i.e., redistribution through a progressive tax) and growing the economic pie (i.e., regressive tax cuts for upper-income households). Implied is that redistributive policies increasing taxes on upper-income households would sharply reduce economic activity, making all households absolutely worse off. But this premise is contradicted by recent experience: President Bush cut taxes for upper-income households and we got the worst economic expansion since World War II, in which the ‘economic pie’ grew a meager 2.6 percent annually (and 65 percent of national income gains went to the highest-income 1 percent of households). The failure of the supply side experiment is unsurprising given ample evidence in the economics literature that the elasticity of taxable income is relatively low, changes in the top marginal tax rate have little impact on productive investment, and marginal tax rates are well below optimal rates.

Yet there is a more fundamental problem with Ryan’s analysis. Ryan is for redistribution, but the kind of redistribution that shifts the burden of taxation from upper-income households to the middle class. Just look at the Ryan Roadmap, his 2010 budget that served as a blueprint for the House Republican 2012 budget. The figure below depicts how the Roadmap would change shares of federal taxes paid and average federal tax rates paid by cash income levels, relative to current policy (from this Tax Policy Center table). Households with income above $1 million would see their average tax rate plummet from 29 percent to 13 percent, lowering their share of federal taxes paid by 10 percentage points. On average, households earning between $20,000 and $200,000 would see their taxes rise, subsidizing the upper-income tax cut. More than two-thirds of households would see a tax increase.

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This redistribution will not close the income gap or foster economic mobility; this will merely confer a tax cut of $500,000 to households earning over $1 million annually. And for the reasons noted above, these tax changes are unlikely to spur long-term growth (any more than the public investments that Ryan’s budget would instead cut).

Finally, Ryan’s rhetorical support for economic mobility is contradicted by his oppositions to the very policies that promote mobility. Education and training provide a means by which low-income Americans can climb the socioeconomic ladder, and the social safety net helps that climb by lowering its risk. Yet Ryan supports massive cuts to these government functions and programs, such as Pell Grants helping low-income students pay for college.

Ryan’s acknowledgment that income inequality is a problem is certainly appreciated, but one wonders if the staffers who wrote this rebuttal are actually familiar with his policy positions.

The crisis in the eurozone, and the bizarre failure of the European Central Bank (ECB) to even try to manage it, has united strange bedfellows in arguing that the United States Federal Reserve should begin acting as in loco Responsible Central Bankis for the eurozone.

Brad DeLong argued a week ago for the Fed to begin buying up Italian and Greek debt to avoid a financial crisis potentially as big or bigger than the fallout from Lehman’s collapse in 2008. Dean Baker and Mark Weisbrot, often skeptical of finance-centric explanations of (and solutions to) the ongoing jobs crisis over the years since the Great Recession began … agree wholeheartedly.

Yes, as a general rule, economists agreeing with each other is usually a recipe for other people to begin reaching for their own wallets, but this group is both smart and (much) more importantly right on this specific issue. If the ECB won’t act like a central bank, and if the absence of a central bank in the eurozone threatens American economic growth (and it does – the eurozone is a crucial export market for the U.S. and fallout from U.S. banks holding eurozone could indeed be ugly), then it makes sense for the Fed to step in.

It would be really helpful, by the way, to have the two current vacancies on the Fed’s Board of Governors filled by people who were consistently arguing for aggressive actions to stem the economic crisis.

This week, the House of Representatives is expected to vote on two regulatory reform bills: H.R. 3010, the Regulatory Accountability Act (RAA), and H.R. 527, the Regulatory Flexibility Improvements Act. These bills would alter the regulatory process significantly, likely severely restricting the adoption of new regulations. In advancing these bills, proponents argue that regulations have become exorbitantly costly and are a large threat to jobs. These claims do not hold up to scrutiny, and are frequently made in a greatly exaggerated or substantially misleading manner.

EPI has issued a series of reports this year that assess these claims.  The evidence we have compiled, which I summarized in two recent EPI publications, might be of particular interest this week.

“A quick guide to EPI’s research on the costs and benefits of regulations” describes three main findings:

• Government data show that over several decades, and during the Obama administration as well, the benefits of regulations have significantly and consistently exceeded their costs.
• The much-scrutinized EPA regulations fare especially well according to cost-benefit criteria. The compliance costs of Obama EPA regulations are tiny relative to the size of the economy, are neutralized by their economic benefits, and are dwarfed by their health benefits.
• Regulatory opponents often cite large cost estimates that are entirely unsupportable. This conclusion particularly applies to their repeated use of the Crain and Crain $1.75 trillion estimate of the costs of regulation, which our own research, the Congressional Research Service, the Administration’s Council of Economic Advisers, and the Center for Progressive Reform have found is unreliable and grossly overstated.

“A quick guide to the evidence on regulations and jobs,” also has three main findings:

• A huge shortfall in demand, not regulatory uncertainty, is what ails the economy.
• New EPA regulations, in particular, can be expected to have a negligible effect on the overall economy. The largest EPA regulation proposed so far (the “air toxics” rule) would, in fact, likely create a modest number of jobs.
• Academic studies of and data on the relationship between employment and regulations generally find they have a modestly positive or neutral effect on employment.

Throughout the past year, the case against regulations has been driven by inaccurate overestimates of the economic damage they cause. As Congressional debate over sweeping regulatory reform bills proceeds this week, these erroneous claims are likely to be repeated, potentially contributing to the adoption of legislation damaging to the rules necessary to promote public health and safety, as well as economic stability.  It is an important time to compare these claims to the facts documented by EPI research this year.

Before Thanksgiving dinner each year, my stepfather likes to say a prayer imploring all of us to “try to keep things in perspective.” Despite it being more than a bit stale at this point (sorry, dad), I can already hear him delivering this refrain yet again this year. So in that spirit, I think it is worthwhile—especially at a time of frustrating congressional inaction and worrisome missed opportunities—to take stock of what some government programs do achieve, while being mindful of all that still needs to be done.

As I have written previously, the Census Bureau’s new Supplemental Poverty Measure (SPM) is an attempt to better identify America’s poor, by accounting for many of the additional expenses that families face and the resources that government programs provide. As the figure below illustrates, the effect of many of these programs is significant.  While the percentage of people below the SPM poverty line is already a woeful 16 percent, it would increase to 18 percent without the Earned Income Tax Credit (EITC). That would be an additional 6 million people living in poverty. If you consider the EITC’s effect on those under 18, the benefit is even more striking: from 18.2 percent in poverty with the EITC to 22.4 percent without it. That’s roughly 3.1 million children kept above the poverty line.

The Supplemental Nutritional Assistance Program (SNAP, formerly the Food Stamp Program) shows a similar impact. The overall poverty rate would be 17.7 percent versus 16 percent without accounting for SNAP, a difference of about 5.2 million people. For children, the poverty rate goes from 21.2 percent without SNAP down to 18.2 percent – roughly 2.2 million children.

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These are nontrivial differences, to be sure.  Yet even with these programs, the picture of America described by the SPM is one of substantial unmet need: 49 million people living in poverty, including almost 14 million children. We are the richest nation in the world, yet one-sixth of our nation is considered poor, and almost half (47.9 percent) are within 200 percent of the poverty line – what some might call “near poor.” That strikes me as a potentially “perspective altering” statistic. Maybe my stepfather is on to something.

Jason Richwine of the Heritage Foundation and Andrew Biggs of the American Enterprise Institute are at it again (following up on an earlier study for the Business Roundtable), claiming that government workers—in this case teachers—are grossly overpaid. EPI  and others have expended much ink on this topic, and forthcoming EPI research will address some of the latest claims in greater detail (though maybe Jon Stewart said it all in his message to teachers about “the greed that led you into the teaching profession”).

But one of the key arguments Richwine and Biggs make is so sloppy, it should only take a blog post to rebut: the claim that “teachers exhibit low cognitive abilities compared to other college graduates” and that once you take this into account teachers suffer no wage penalty. Since all employers would love to be able to accurately assess the skills of prospective employees, it’s amazing that such a tool, if it exists, isn’t in widespread use. The miracle tool turns out to be the Armed Forces Qualification Test, which Richwine and Biggs refer to as an IQ test. Here’s what the AFQT actually tests:

• general science
• arithmetic reasoning
• word knowledge
• paragraph comprehension
• numerical operations
• coding speed
• auto and shop information
• mathematics knowledge
• mechanical comprehension
• electronics information

Is it really surprising that a future kindergarten or high school history teacher would score lower on this test than a future engineer or army officer?  There are many other issues one can raise about the AFQT score, but that will have to wait for a later time.

But even if the AFQT score contained important information about teaching ability, Richwine and Biggs aren’t content to add this measure to their statistical model to explain wages as economists normally do.

That’s because adding this variable doesn’t change the basic story, which is that teachers’ earnings are significantly lower than those of similar college grads, even those with the same AFQT scores.

See the results in their table. In regressions with the traditional specification (i.e., the variables included as controls) they find teachers earn 12.6 percent less than comparable workers (see row 1). In their next specification, they add the AFQT score, thus controlling for comparable education and AFQT score (which they mistakenly refer to as IQ). Their results show that teachers earn 10.7 percent less than other workers with comparable education and AFQT scores. That means that including the AFQT score seems to reduce the teacher penalty (actually, they do not provide the statistical information to judge whether there is a statistically significant difference between these two estimates) but in no way eliminates it. So, how do Richwine and Biggs reach the conclusion that there is no teacher wage penalty? They say:

“The wage gap between teachers and non-teachers disappears when both groups are matched on an objective measure of cognitive ability rather than on years of education.”

Check out EPI research on the teacher pay penalty and the updated analysis and watch this space for an upcoming blog on teacher benefits, which Richwine and Biggs claim are worth as much as teacher salaries. In the meantime, you may want to read this DailyKos blog from a teacher inviting Richwine and Biggs to join him in the public schools. We can give Richwine and Biggs a pass on the value of their research if they want to enjoy these lavish perks themselves.

Yesterday, the congressional supercommittee announced that it failed to come to an agreement to reduce the deficit by at least $1.2 trillion over 10 years. The committee’s failure automatically triggers $1.2 trillion in cuts to domestic and defense spending starting in 2013, along with the expiration of the Bush tax cuts. The failure of the committee is no surprise to observers, given the failure of past commissions, negotiations, and various other initiatives. This is especially true since congressional Republicans continue to rule out reversing Bush-era tax cuts for high-income individuals, effectively insisting that the burden of deficit reduction be borne primarily by low- and moderate-income Americans.

The commission has not only failed to address medium-term deficits, but it has passed up an opportunity to address the immediate crisis: jobs. With unemployment and underemployment remaining high and job creation remaining weak, we cannot continue to let the wounds to the labor markets fester.

Looking forward, Congress needs to immediately turn to jobs. This means continuing emergency measures to boost consumer demand by extending support for unemployed workers and preserving tax cuts targeted to low-income taxpayers (by extending the payroll tax holiday or enacting a more targeted credit). It also means providing federal assistance to prevent further pullbacks by state and local governments. Finally, this means investing in America’s future by boosting infrastructure spending, supporting our children’s education, and creating work opportunities for all.

Congress can still address the jobs crisis, and should do so immediately.

From left, supercommittee members Sen. Max Baucus (D-Mont.), Rep. Rob Portman (R-Ohio), and Sen. John Kerry (D-Mass.). (Image from Flickr Creative Commons by sunlightfoundation)

Later today, I will pass through two of our nation’s airports, where I will see ample evidence suggesting that we collectively place a very high priority on protecting our transportation infrastructure from harm. On my way through security, I will dutifully remove my shoes, and will remove from my pockets such benign items as a marker, an extra paper napkin from lunch, and the keys to my bike lock.

Yet throughout this same country, there are nearly 70,000 bridges that the U.S. Department of Transportation has identified as “structurally deficient.” We all recall with horror the 2007 collapse of the bridge in Minneapolis, yet there are thousands of such ticking time bombs throughout America today. In three states — Iowa, Oklahoma, and Pennsylvania — there are over 5,000 bridges deemed to be structurally deficient. While not every one of those bridges is in imminent danger of collapse, these remain alarming numbers.

Fixing America’s crumbling infrastructure should be a top priority for every national, state, and local official throughout the nation. It’s easier than often is the case in public policy debates to connect the dots on this one:

• Crumbling infrastucture + alarmingly high rates of unemployment (particularly amongst construction workers) + interest rates at rates that remain at unprecedented low levels = jobs plan that helps put Americans back to work today, while laying the foundation for future economic growth and prosperity.

While there’s certainly room for debate about how to proceed with infrastructure investment at this time, there really shouldn’t be any debate about whether to do this. My colleague, John Irons, testified this week before the Congressional Progressive Caucus Ad Hoc Hearing on Job Creation. In his testimony, he noted, “Congress should immediately reauthorize the Surface Transportation Act at the higher spending levels requested by President Obama … increase[ing] transportation investments by $213 billion over the next decade [thereby] add[ing] 350,000 job-years of employment over 2012-2014.”

Michael Likosky has written at length about the need to create an infrastructure bank, leveraging both public and private sector money to strengthen America’s infrastructure, and noting that, “If we don’t find a way to build a sound foundation for growth, the American dream will survive only in our heads and history books.”

American workers understand the importance of investing in infrastructure — last Thursday, tens of thousands of workers rallied in cities and towns throughout America for bridge repairs and job repair, as part of the AFL-CIO’s Infrastructure Investment Day of Action.

For state governments, investing in infrastructure through bonding is one of the few (and most effective) tools at their disposal to help spark a real economic recovery that helps working families today, while making investments that will contribute to future prosperity. Friday’s “Smart Brief” from the American Society of Civil Engineers highlights Massachusetts Gov. Deval Patrick’s plan to invest $10 billion over the next five years in capital spending, “focus[ing] on job creation through transportation projects, smart growth and construction and improvement of public higher-education facilities.” This is the sort of initiative that other states should emulate. Only through such aggressive investment in infrastructure will Americans in every state be confident that they are safe crossing today’s bridges, and that the road ahead leads to shared prosperity.

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The House of Representatives voted today on H.J. Res 2, a Balanced Budget Amendment (BBA). Because it would have amended the Constitution, the BBA would have needed a two-thirds majority vote to pass. The final vote count was 261-165, with four Republicans voting against the bill (though some cast their votes because it wasn’t strict enough) and 25 Democrats voting for the bill.

This vote came about directly as a result of the August debt limit agreement, in which conservatives demanded a vote on a balanced budget amendment before the end of the year. Besides requiring the president to submit a balanced budget to Congress each year, this amendment would have required a three-fifths majority vote in order to raise the nation’s debt limit (which, in layman’s terms, would mean more playing chicken with the U.S. credit rating). A number of House Republicans would have preferred to vote on an amendment that included both a spending cap at 18 percent and a two-thirds majority vote requirement in order to raise revenue; this amendment did not include those measures seemingly in an effort to gain more Democratic support.

The term “balanced” budget amendment is misleading – it fools people into thinking it may be a responsible policy to support. This is anything but the case – a BBA would in fact be a gravely irresponsible way to go about addressing our nation’s fiscal issues. Bob Greenstein of the Center on Budget and Policy Priorities sums it up nicely:

“The amendment would raise serious risks of tipping weak economies into recession and making recessions longer and deeper, causing very large job losses. That’s because the amendment would force policymakers to cut spending, raise taxes, or both just when the economy is weak or already in recession — the exact opposite of what good economic policy would advise.”

When recessions hit, spending on unemployment insurance and various other safety net programs, like food stamps, increases as more people fall on hard times (these are called automatic stabilizers). At the same time, revenues fall due to fewer people working and paying taxes. This leads to natural deficits during recessionary times. These deficits then shrink as spending on automatic stabilizers eventually falls and revenue streams eventually pick up. A BBA would not allow this excess spending, and would instead force spending to fall along with revenues. This would be disastrous during economic downturns both macroeconomically and for millions of Americans’ living standards. The Macroeconomic Advisers, an economic forecasting firm, recently provided interesting detail in a blog post regarding what might have happened had a BBA been passed and ratified, and taken effect in 2012. They say:

“The effect on the economy would be catastrophic. Our current forecast shows a Unified Budget deficit of about $1 trillion for FY 2012. Suppose this fall the federal government enacted a budget for FY 2012 showing discretionary spending $1 trillion below our forecast, resulting in a “static” projection of a balanced budget for next year. $1 trillion is roughly two-thirds of all discretionary spending, and about 7% of GDP. Our short-run multiplier for discretionary spending is about 2, and let’s assume a simple textbook version of Okun’s law in which the unemployment gap varies inversely with, but by half as much as, the percentage output gap. Then, instead of forecasting real GDP growth of 2% or so for FY 2012, we’d mark that projection down to perhaps -12% and raise our forecast of the unemployment rate from 9% to 16%, or roughly 11 million fewer jobs. With interest rates already close to zero, the Fed would be near powerless to offset this huge fiscal drag.”

In sum, if a BBA had been in place, it would have resulted in catastrophically lower GDP growth for FY 2012 and catastrophically higher unemployment. A BBA is a bad idea that does not deserve the falsely positive term “balance” in its title.

Representative Denny Rehberg (R-MT), Chairman of the Labor-HHS-Education Appropriations Subcommittee, recently launched a massive attack on the federal government’s efforts to improve the labor standards, job prospects, wages and bargaining rights of American workers. His numerous amendments to a major bill to fund the Labor Department and other agencies would block the government’s efforts to improve enforcement of wage laws, make construction work safer, protect the jobs of U.S. workers, reduce the levels of respirable coal dust that causes black lung disease, and give workers a fair chance to have a union if they want one. And where the law is already working to ensure contractors don’t compete for federal construction projects by driving down wages, Rehberg’s amendments would undermine the existing law.

Given that a decent job is the ticket to the middle class, Rehberg’s attack looks like the 1 percent trying to slam the door on the 99 percent.

Rehberg is going after important protections that don’t cost a lot of money. One of his targets is a Labor Department program – Bridge to Justice — that does nothing more than refer workers who’ve been cheated out of wages through the American Bar Association to attorneys with relevant experience. Obviously, Rehberg isn’t trying to save the taxpayers money, he’s simply trying to protect unscrupulous employers.

Rehberg’s legislation fits neatly into the business lobby’s campaign to weaken the National Labor Relations Board, the agency created to protect the right of workers to join unions and exercise their collective bargaining rights. His bill cuts NLRB funding by $49 million and targets rules that inform workers of their rights, enable workers to communicate with each other during union election campaigns, and ensure that union elections are conducted efficiently.

The employer campaign to prevent reforms at the NLRB depends upon misinformation and the fact that the public is largely unaware that union elections look more like those in a one-party state than in a true democracy. The last thing Rep. Rehberg’s corporate allies want is a system that gives full expression to employees’ desires to join together and improve their wages, job security, and working conditions.

Finally, the bill undoes recent rule changes from the Labor Department in the H-2A and H-2B programs that favor the hiring of U.S. workers at prevailing wages over foreign guestworkers for relatively low-skilled jobs as farmworkers, hotel maids, and landscapers. The bill would thus make it harder for U.S. workers to find jobs and would depress wages.

Every one of the two dozen or so labor-related provisions in the bill is bad policy, and one can only hope that Senate Labor-HHS Appropriations Subcommittee Chairman Tom Harkin (D-Iowa) and his Senate colleagues reject them all.