What we read today

Here’s some thought-provoking content that EPI’s research team enjoyed reading today:


Government has flouted its obligation to affirmatively further fair housing

President Obama and Secretary of Education Arne Duncan claim that the poor achievement of African-American students is the “civil rights issue of our time.” Yet there is little chance that the achievement gap between white and black students will be narrowed significantly, as long as large numbers of disadvantaged children are concentrated in racially segregated and economically bereft urban neighborhoods. In these (to use William Julius Wilson’s term) “truly disadvantaged” neighborhoods, teachers are overwhelmed by the impediments to learning that children bring to school, and that reinforce each other in racially and economically isolated classrooms. None of this can change substantially until metropolitan areas are residentially desegregated.

An investigation by Nikole Hannah-Jones for ProPublica, “Living Apart: How the Government Betrayed a Landmark Civil Rights Law,” published this week, demonstrates that the Obama administration and its predecessors have done little to promote residential integration.

Specifically, Hannah-Jones exposes the contempt with which the federal government, for 45 years, has ignored its obligation under the 1968 Fair Housing Act to “affirmatively further” the goal of racial desegregation. Read more

Heritage Foundation’s view on China trade and jobs is like old wine that’s aged badly

A recent blog post by the Heritage Foundation’s Derek Scissors claims that my estimates of the number of jobs lost due to growing trade deficits with China “are demonstrably wrong.” Scissors then fails to demonstrate how they’re wrong.

That’s because he can’t. The economic models used in our report (Scott 2012, 9, Appendix and note 15) are the gold standard for research on the employment effects of trade, and “all but identical models” have been used in similar studies by the Federal Reserve Bank of New York, by Martin Bailey and Robert Lawrence of the Brookings Institution, and in a U.S. Commerce Department study that represents the work of more than 20 government economists including the chief economists from that agency and the Office of the U.S. Trade Representative.

At its core, our model is based on a straightforward application of Keynesian economics and national income accounting, which show that exports stimulate the domestic economy while imports reduce demand for domestic products. Scissors (and many others before him, such as Dan Griswold at Cato and the U.S. China Business Council) claims that imports are good for the economy, in part because they are correlated with growth. But this assertion ignores two fundamental questionsRead more

Robert Samuelson on government jobs: They exist, but people who recognize them are like flat-earthers

It’s hard to improve upon Dean Baker’s response to Robert Samuelson’s deeply confused column about government jobs, but I’ll just add briefly here.

It’s entirely clear that the whole discussion over “government creating jobs” sparked by President Obama’s closing statement in the second presidential debate is really about the role of public-sector hiring or cutbacks as something that either cushions or exacerbates the current problem of chronically high unemployment rates.

This debate just can’t be about anything else, because it would just be too silly. And it surely can’t really be about what Samuelson spends most of his column doing: wondering whether or not government jobs are really jobs.

Government jobs are jobs, period. Nothing about the fact that they require “money to support [them]” or that public hiring can lead to “substituting public-sector workers for private-sector workers” changes this. As Baker notes, private-sector jobs “require money” to support them, and, there are plenty of times when rising private employment in one sector drives declining private employment in another. This all just seems too obvious to need pointing out.

No, the issue is whether or not cutbacks to public-sector employment when the economy has lots of productive slack lead to net economy-wide job loss, and just how much. The answers to this are “they do,” and, “a lot.” Around 2.3 million is our estimate, cited by the New York Times.

Samuelson notes that government spending during times of economic slumps can boost net job creation, but then notes that the idea of fiscal stimulus is “fiercely debated” and says he doesn’t “intend to settle this debate either.”

That’s too bad, and I wonder why not? After all, that particular debate (i.e., is contractionary fiscal policy really contractionary?) really isn’t particularly hard.

But then again, I didn’t think that it was so hard to recognize what a “job” is, either.


Outcome of presidential election will impact judicial review of vital federal regulations

The impact of each presidential election on the makeup of the Supreme Court receives plenty of media attention and is analyzed extensively by experts and court watchers—and deservedly so. During the vice presidential debate, Vice President Biden predicted that the next president is likely to appoint “one or two” justices to the nation’s highest court. Although this prediction may have spooked a few of the Supreme Court justices, given that they would either have to die or retire to open a seat on the court, the election’s impact on the judiciary is a crucial consideration. Lifetime appointments for Supreme Court nominees mean they are sometimes the most enduring legacy of a president’s administration. Given that the Supreme Court is currently comprised of five conservative and four moderately progressive justices, the next administration could realistically tip the ideological balance of the court.

Some of the Supreme Court’s decisions in the past few terms, on Citizens United, the Affordable Care Act, and Arizona’s SB1070 immigration law, for example, were monumental decisions that will impact the everyday lives of citizens, and even the framework of American democracy. But the mainstream media, for the most part, have paid little attention to the potential impact of the election on federal regulationsRead more


What we read today

Here’s some reading material for you from items EPI’s research team skimmed through today:

What we read today

How revenue-neutrality would change the employment impact of Romney’s budget plan

My colleague Josh Bivens and I recently published a briefing paper analyzing the near-term macroeconomic impacts of the Obama and Romney budget proposals based on prevailing actionable evidence. (Short summary of findings here.) Our verdict was that Obama’s budget plans would lead to increased employment of 1.1 million jobs in 2013, relative to current policy, whereas Romney’s proposals would lead to small job gains of 87,000 in 2013 if all his proposed tax cuts were deficit-financed, but lead to job losses of 608,000 in 2013 if only some of his tax cuts were deficit-financed.

This latter estimate assumed Romney’s proposed 20 percent reduction in individual income tax rates and alternative minimum tax (AMT) elimination would be revenue-neutral, whereas his earlier proposals—notably cutting the corporate tax rate and eliminating the corporate AMT, taxes on foreign profits, the estate tax, and Affordable Care Act taxes—would be deficit-financed. While regressive tax cuts are really inefficient at boosting growth, enough money plowed into inefficient tax cuts will modestly boost demand and, short of “base-broadening,” (none of which has been concretely specified) Romney is proposing a lot of costly tax cuts. Read more

More reasons why China’s currency should remain a live issue

Paul Krugman and others have recently claimed that Chinese currency manipulation is “an issue whose time has passed.” There are two fundamental problems with these arguments. First, China’s global trade surplus appears to be perhaps three to four times larger than has previously been reported. Second, productivity in China is growing much faster than in the United States and other developed countries and therefore, China’s exchange rate likely needs to appreciate at least 3 to 5 percent per year just to keep its trade surplus from growing. On the first issue—what the size of the Chinese current account surplus and its recent movement tell us about the need for currency realignment—it’s worth noting that most of the decline in China’s global trade surplus since 2008 is explained by the great recession and the sluggish recovery, especially in Europe. However, the U.S. bilateral deficit with China has increased by a third since it bottomed-out in 2009, which has slowed the U.S. recovery.

Further, China’s trade data likely understates its global trade surplus by a significant amount, a problem that has been ignored by officials in the United States, the International Monetary Fund and other international agencies. The IMF relies on self-reported data from each member country. Analysis of trade data from the United Nations shows that China is massively under-reporting its exports. Read more

Not dead yet: Currency management and the need for a more competitive dollar

A number of commenters declare that currency management by our trading partners is an issue “whose time has passed.” At the risk of violating Brad DeLong’s wise rules (Paraphrased: “Mistakes are avoided if you follow two rules: (1) Remember that Paul Krugman is right, and (2) If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule No. 1”), I’m not convinced by claims—even Krugman’s—that this is a dead issue.

Look at one key piece of evidence Krugman presents: the real (inflation-adjusted) appreciation of the yuan in the last year. But, as Krugman himself has said in previous writings on this:

Notice that I didn’t mention the value of the renminbi at all in this account [ed: of China’s currency management]. … You want to keep your eye on the ball: it’s the artificial capital exports that are the driving force here.

We know that the renminbi is grossly undervalued … on a PPE (proof of the pudding is in the eating) basis: the current value of the renminbi is consistent with massive artificial capital export, and that’s that.” [Edited for clarity; I’m pretty sure I haven’t done any (much?) damage to his argument].

So, have the artificial capital exports from China continued? Read more

Anti-regulatory malarkey

Every once in a while, someone will write a column so densely packed with deception and misinformation that it truly astonishes me. Last week, U.S. News and World Report published such a column about government regulation of business by John Allison of the Cato Institute. I feel compelled to respond.

Let’s start with Allison’s use of a thoroughly discredited study that estimated the annual cost of regulation to be $1.75 trillion in 2008. This report, by Nicole and Mark Crain of Lafayette College, has been shown to be based on flimsy data, a flawed methodology based on a misuse of polling data, and an equally discredited estimate of the costs of OSHA regulation whose original data are untraceable. The Small Business Administration funded the research, but the Chairman of the Council of Economic Advisers has condemned it:

“The Council of Economic Advisers has looked at those claims and the $1.75 trillion figure is utterly erroneous. In fact, their [Crain and Crain’s] own data (which come from the World Bank) show that countries with smarter regulations have higher standards of living, and the United States has one of the best regulatory systems in the world.” Read more


Schumer’s spot on: 1986 is the wrong model for tax reform

Sen. Chuck Schumer (D-NY) recently made headlines in declaring that marginal income tax rate reductions are a terrible starting point for tax reform—they shouldn’t be a priority, period—and that the dual objectives of the Tax Reform Act of 1986 are completely inappropriate today. The 1986 reform, the last comprehensive “cleaning” of the tax code, is often touted as the model for tax reform, which Schumer attributes more to coalescing political bipartisanship than policy specifics. The ’86 framework of base-broadening, rate reductions, and distributional neutrality was recently adopted by two prominent tax proposals Schumer is now urging Democrats to reject—reforms proposed by Fiscal Commission Co-Chairs Alan Simpson and Erskine Bowles, as well as the Gang of Six (although both of these proposals would raise revenue, unlike the ’86 reforms). And Schumer is absolutely right about both the premise and conclusion of his argument. Here’s his take in a recent interview with Ezra Klein:

Klein: “The core of your argument is that tax reform in 2012 is proceeding atop a mistaken analogy to tax reform in 1986. So why isn’t 2012 like 1986?”

Schumer: “It’s not like 1986 for two reasons. Read more

No, we don’t need China to finance budget deficits

As a follow-up to my earlier post, another issue likely to be raised in tonight’s debate is the issue of federal budget deficits that force us to “borrow from China.” Is this a real problem, and will it hurt if China suddenly decides to stop lending us money?

No and no.

First, rising budget deficits since the Great Recession began have actually been more than financed by rising domestic savings of U.S. households and businesses. In fact, the huge spike in private savings that began in 2007 (see the chart below) is the reason for the Great Recession: households and businesses stopped spending in 2008 and the economy cratered thereafter, cushioned a bit by the rise in government deficits. So, we have not relied on rising borrowing from China to finance the increased budget deficits in recent years, instead the rise in domestic savings has been more than sufficient to cover these.

But what happens if China turns off the spigot and stops trying to buy U.S. Treasuries and other dollar-denominated assets?

This would have two effects. First, the decline in available savings that can be borrowed by American households, businesses, and governments would decline. In normal times, this could bid-up interest rates. Think of interest rates as the price of loanable funds—as the supply of loanable funds falls, the price should be expected (all else equal) to rise. But we’re not in normal times. Instead, the American economy remains characterized by a huge excess of savings over demand for new loans, meaning that there’s no upward pressure on interest rates. Absent this upward pressure on interest rates, no damage would be done if China stopped plowing money into buying dollar-denominated assets.

Second, if China did stop buying U.S. assets, the value of its currency would increase vis-à-vis the dollar, and this would spur U.S. exports, both to China as well as to third-country markets.

So, in regards to China buying the U.S. government’s debt, it’s not only nothing to worry about, it would be better for the U.S. economy if they stopped.

Notes for tonight’s debate: Faster growth without growing budget deficits requires a more competitive U.S. dollar

Tonight’s presidential debate will mostly focus on issues out of my wheelhouse, but there are a couple of international economic issues that will come up that people should be prepared for. This post tackles one (currency management by our trading partners, particularly China) and a subsequent post will tackle the other (alleged reliance of the U.S. on China to buy our public debt).

The primary reason why the United States ran large (and generally-growing) trade deficits over the past 15 years was that the value of the U.S. dollar was too expensive. This expensive dollar prices our exports out of too many global markets. The source of this too-expensive dollar has actually varied over that time, but over the past decade it has been clearly driven by the policy of foreign governments buying hundreds of billions of dollars of dollar-denominated assets, hence increasing the demand for dollars, which pushes up the price of dollars on world markets.

In the late 1990s and early 2000s, it was largely private investors demanding dollars to buy into the U.S. stock market, and to find a safe haven for their investments in the fallout Read more

What we read today

Here’s some of the interesting content that EPI’s research team browsed through today:

House Republicans block remedy for China’s job-killing currency intervention

One year ago, on Oct. 11, 2011, the Senate passed Sherrod Brown’s  Currency Exchange Rate Oversight Reform Act of 2011. This legislation aimed to put an end to the exchange rate intervention practiced by China and other countries, which kills jobs in the United States by artificially lowering the cost of the intervening countries’ exports while making goods produced in the U.S. artificially expensive. The Senate passed the bill 63-35, on a rare bipartisan vote.

The next day, the bill was sent to the Republican-controlled House of Representatives, where it has been blocked ever since. This gridlock is especially unfortunate because a year earlier, in Sept. 2010, the House passed a somewhat tougher bill, the Currency Reform for Fair Trade Act, by an overwhelming vote of 348–79, with a majority of Republicans joining their Democratic colleagues in support.

China continues to peg its currency to the dollar at an artificially low rate, and good-paying manufacturing jobs in the U.S. continue to be lost as a result. At an event hosted by EPI, two economists who have long favored free trade, Fred Bergsten and Paul Krugman, agreed that ending China’s “staggering and unprecedented” currency intervention could create up to a million jobs in the U.S., a result that would also improve the U.S. budget deficit and add as much as $200 billion to U.S. GDP.

So why hasn’t Congress acted? What happened to change the outcome in the House from one year to the next? Most obviously, control switched from the Democrats to the Republicans in the 2010 elections, and the new Speaker of the House, John Boehner, and the new majority leader, Eric Cantor, both opposed the bill in 2010.

Penalizing imports from China that have benefited from illegal currency intervention is very popular, with public support more than 70 percent in most polls. But the U.S. Chamber of Commerce and other business groups representing the multinational corporations that benefit from China trade are dead-set against the currency bill. From their point of view, policies like China’s currency intervention that put pressure on U.S. workers to accept pay cuts and other concessions to save their jobs are just fine. Corporate lobbying and campaign contributions almost guarantee that Congress will remain deadlocked on this issue.

Romney’s evasive language hides his tax cut for the rich

Republican presidential candidate Mitt Romney has been adamant that his tax plan won’t cut taxes for the rich. In the debate earlier this week, he said:

“The top 5 percent of taxpayers will continue to pay 60 percent of the income tax the nation collects… I will not reduce the share paid by high-income individuals.”

So would his plan cut taxes for high-income households? Most likely. Note that he specifies the share of federal income taxes.  Why is this important? If his plan was revenue-neutral, there would be no distinction: the same share of the same total revenue equals the same amount of taxes paid.

But it’s clear that his plan can’t be revenue neutral: According to the Tax Policy Center, the 20 percent cut would give households with income of more than $200,000 a $251 billion tax cut, but they only get $165 billion in tax breaks (excluding the tax breaks for savings, which Romney has proposed to retain). A more recent TPC analysis shows that the $25,000 cap on itemized deductions he floated in the debate would only raise $1.3 trillion, offsetting only a quarter of the $5 trillion cost of his across-the-board rate cut.

So it seems that Romney’s plan would lose revenue, and if high-income households are paying the same share of a lesser amount of overall tax revenue, that means their tax bill will fall. This conclusion is reinforced by Romney’s own choice of words.  If his plan really did ensure that the top households didn’t get a tax cut, why would he often insist on describing his plan using the clunky “I will not reduce the share of taxes paid” explanation? It’s a roundabout explanation that suggests that even Romney knows that his plan will result in high-income households paying less in taxes.

Fighting waste and abuse in defense contractor pay

Politicians love to complain about “waste, fraud and abuse,” and to promise to root it out. But few of them ever actually take the opportunity to attack actual waste or abuse (as opposed to making fun of scientific research they don’t understand or bike path construction projects they disagree with). But soon, in the lame duck session of Congress that will begin after the election, members of Congress will have a chance to vote against actual waste and abuse, or—if they’re so inclined—to allow it to continue, at great cost to the taxpaying public. Thanks to an amendment to the Department of Defense authorization bill introduced by Sen. Joe Manchin of West Virginia, Congress has an opportunity to put an end to an egregious practice of self-dealing and self-aggrandizement by federal defense contractors that costs the government billions of dollars a year.

Top federal contract employees are treated very differently (and much better) than equivalent employees on the federal civil service payroll. Current law permits federal contractors to charge the government up to $763,029 a year for their employees, while even federal cabinet secretaries are paid no more than $200,000 a year, and the president is paid only $400,000 a year. Read more

Celebrate the Clean Water Act

Today is the 40th anniversary of the Clean Water Act, federal legislation that has improved quality of life for millions of Americans, increasing recreational opportunities, improving public health, adding to our aesthetic enjoyment of nature and our environment, and providing business opportunities to manufacturers of boats and fishing equipment, rafting outfitters, and retailers of outdoor equipment. The Act is proof of the power and benefits of federal regulation; it transformed our world in so many visible ways and did more to protect our precious water resources than any other action, public or private, in the nation’s history.

It’s hard for young people to imagine just how polluted and threatened our waters were in 1972, when the Act was passed and signed into law by President Richard Nixon. I grew up near Detroit, on the shores of Lake St. Clair, the lake that, along with the Detroit River, connects Lake Erie and Lake Huron. After heavy rains, tides of human sewage and fecal matter would flow out into the lake, and continuous discharges of mercury and other toxins from industrial plants killed all but the hardiest and least appetizing fish. I swam in that lake Read more


What we read today

Here’s some of the thought-provoking content that EPI’s research team enjoyed reading today:

False equivalence in candidates’ budgetary unknowns

Republican presidential nominee Mitt Romney’s budget proposal is short by nearly $9 trillion worth of specifics—the tax increases and spending cuts needed to meet promises of revenue-neutral tax changes and capping government spending at 20 percent of GDP. In this context, the Washington Post editorial board’s recent “pox on both houses” indictment of President Obama for a lack of second-term policy specifics, particularly with regard to fiscal sustainability, was entirely off the mark. Though too often lost on the punditry, the president has produced four comprehensive, independently analyzed and scored budgets—largely consistent and all fiscally sound—offering guidance to what a second Obama administration would imply for economic recovery and fiscal sustainability.

Economy: The president’s fiscal 2013 budget request included an adaptation of the American Jobs Act (AJA), originally a $447 billion package of stimulus spending and tax cuts proposed in Sept. 2011. I recently estimated that full passage of the AJA, relative to the scaled-back payroll tax cut and Emergency Unemployment Compensation extension Congress enacted, would have boosted real GDP growth by 1.4 percentage points and employment by more than 1.6 million by the end of 2012. Read more

What we read today

Here’s some of the thought-provoking content that EPI’s research team enjoyed reading today:

Only a minority of Americans think there is too much regulation

Despite a massive and endless campaign by business lobbyists and associations to vilify government regulation, 50 percent of Americans in a recent Gallup poll think there is too little regulation or just the right amount, while a minority (46 percent) think there is too much. According to the poll, Democrats tend to think regulation is too lax (42 percent think there is too little regulation while 32 percent think the balance is about right), and more Independents think the balance is right or that there is too little regulation (50 percent) than think there is too much (46 percent).

In one sense, this is good news, showing that anti-government cynicism is substantial but still a minority position. Yet it is disturbing to know that 77 percent of Republicans are so opposed to additional regulation when

  • an estimated 100,000 people a year die needlessly from preventable hospital acquired infections;
  • thousands die, more than 100,000 are hospitalized, and millions are sickened by contaminated food while the rate of infections linked to foodborne salmonella has been rising and food safety rules are stalled in Washington;
  • air pollution that can be controlled for less than $3 billion a year causes between 13,000 and 34,000 preventable, premature deaths, 15,000 preventable, non-fatal heart attacks, 19,000 hospital and emergency room visits and 1.8 million days of missed work or school each year. As Steven Pearlstein points out in a recent column, the projected annual compliance cost of EPA’s final cross-state air pollution rule is $2.4 billion, compared with annual health benefits ranging from $120 billion to $280 billion. But the EPA rule was recently struck down by two Republican judges.

It is perfectly clear to me that more regulation would make millions of us both safer and freer—free from the fear that a random bite of spinach or a routine surgery will kill us or a loved one. And when I look back over the past 40 years and consider how much cleaner our lakes and rivers are now, how much more dangerous our workplaces were, and how unsafe the mines, factories, pharmaceuticals, and even the bridges and railways are in less advanced and less regulated countries like China, the last feeling I have about regulation is that we have too much, rather than too little.


How much do you really pay in taxes?

Last night’s vice presidential debate was a good, lively, back-and-forth between Vice President Joe Biden and Rep. Paul Ryan (Wis.). The statement I singled out below was one that I found troubling (among a few)—and one that does a huge disservice in informing American voters on what changes in tax policy essentially mean. About halfway through the debate, Ryan said:

“Now, we think that government taking 28 percent of a family and business’s income is enough. President Obama thinks that the government ought to be able to take as much as 44.8 percent of a small business’s income.”

Far too often when discussing tax policy you will hear lawmakers and pundits use phrases such as the one above—government is “taking X percent of a family’s or a business’s income.” This, whether purposeful or not, unfortunately promotes misinformation regarding how tax rates work. A voter might hear something like what Ryan said and think, “I make $200,000, which puts me in the 33 percent bracket, which means government is literally going to take $66,000, or around a third of my total income, in taxes ($66,000 is 33 percent of $200,000).” This is wrong on a number of levelsRead more


Remembering Paul Wellstone

Sen. Paul Wellstone (D-Minn.) was an inspiration to millions, an unrelenting advocate for the poor, for the disabled, for victims of domestic violence, and for the powerless in our society. When Wellstone and his wife and daughter died in a plane crash 10 years ago, along with staff members and the plane’s crew, the nation lost one of its most important and original voices. We also lost one of our most effective advocates for decency in political life, for justice, and for peace in the world.

We were honored to work closely with Sen. Wellstone on issues of worker safety, labor standards, unemployment insurance, and budget policy. After his death, EPI named its conference room the Paul Wellstone Room, and in our work we still look to his example and courage in telling the truth, fighting for the well-being of the poor and all working families, and treating everyone with the respect and dignity they deserve.

In These Times has published a remembrance of Sen. Wellstone, written by Peter Dreier of Occidental College, that captures how rare he was and what a tremendous loss his death was to Minnesota, to the United States, and to the world.

The ACA unequivocally increases insurance coverage

In the vice presidential debate last night, Rep. Paul Ryan (Wis.) cherry-picked statistics from the Congressional Budget Office on the number of people covered by employer-sponsored health insurance once the Affordable Care Act (ACA) takes full effect. Several fact-checkers (PolitiFact, Washington Post, CNN, Huffington Post, Wall Street Journal, Think Progress) have already challenged his assertion that 20 million people would lose their employment-based health insurance. His number comes from a CBO report, which explored various extreme scenarios for employers under the ACA. That report states: “in CBO and JCT’s judgment, a sharp decline in employment-based health insurance as a result of the ACA is unlikely.”

What’s often left out of this story is the fact that, even in this extreme and unlikely scenario, 29 million more Americans will have insurance (under the ACA). Even if the extreme scenario where 20 million no longer retain insurance through their employer, the vast majority of them will be able to find high-quality, fairly-priced insurance through the new exchanges. Unlike today, the insurance exchanges will be well-run insurance markets where consumers can’t be discriminated against for having pre-existing conditions and where many will be offered subsidies to make insurance affordable. Further, as the CBO estimates, it is expected that those who no longer received ESI would receive “an increase in taxable wages and salaries.”

In that same report, the CBO illustrates another scenario where 3 million more Americans would receive employment-based insurance under the ACA. Their best guess was 5 million fewer, and 31 million more insured overall. So, while the scenario Ryan cherry-picked is highly unlikely, if it comes to bear, Americans without employer-sponsored health insurance will still be captured by the ACA safety net.

Romney budget hides nearly $9 trillion of painful consequences

The budget plan of Republican presidential nominee Mitt Romney includes large unspecified consequences; these are tallied here, and the complete implications of the plan are briefly illustrated. The tally includes not only the unspecified tax increases his plan dictates that have been the subject of much debate, it also includes the less-discussed unspecified budget cuts necessitated by a proposal to cap federal outlays at 20 percent of the economy.

  • To meet Romney’s commitment to limit spending as a percent of the economy to 20 percent while at the same time increasing defense spending to 4 percent of GDP, would require nondefense spending cuts totaling $6.1 trillion from 2014–2022, according to an analysis by the Center on Budget and Policy Priorities (CBPP). The Romney campaign has proposed only $2.4 trillion of specific spending reductions.  It has not specified the other $3.7 trillion in spending cuts necessary to achieve its budget plan.
  • Similarly, over the next decade Romney proposes $5 trillion in tax cuts, a widely-discussed figure that in fact appears to be understated.1 Beyond suggesting possibly capping the dollar value of itemized deductions—doing so could increase taxes on middle-income households and even fully eliminating itemized deductions would not keep upper-income households from receiving a net tax cut—the Romney campaign has not identified any specific changes in tax policies to offset these tax cuts, but in the Oct. 3 debate Romney stated his tax plan would be revenue neutral.
  • In combination, over the next decade the Romney budget plan would necessitate $11.1 trillion of spending cuts and tax increases. It specifies just $2.4 trillion of these, thereby hiding $8.7 trillion of painful decisions. Read more

Walmart strikes dramatize third-world inequities

The series of small strikes at Walmart stores around the country reminds me of the first outbreak of what became the Arab Spring, in the sense that it’s so unexpected and requires so much courage that you can’t help being astonished.  Democratic protest at Walmart is rarer than in any Arab dictatorship. Walmart, after all, is far more powerful financially than Tunisia, where the first Arab Spring protest occurred. In fact, Walmart’s $400 billion-plus revenues are about 10 times larger than the entire GDP of Tunisia.

But Walmart is very like Tunisia in two key ways: its workers tend to be impoverished while the benefits of its economic activity accrue to a tiny elite (principally, the Walton family). The World Bank reports that Tunisia is a highly unequal society:

“Tunisia continues to be a low-wage, low-value added economy, unable to absorb an increase in skilled workers. Cronyism and anticompetitive practices allowed a privileged minority to enjoy the lion’s share of the benefits of growth and prosperity.”

The striking Walmart workers’ complaints about poverty level wages contrast sharply with the Walton family’s shocking wealthRead more

Joel Klein’s false stories

“Sleight of Hand,” an article in the November-December issue of The American Prospect, describes how federal, state, and local housing policies, including the public housing program, were designed a half-century ago to segregate our major metropolitan areas, and how the residential patterns created by public policy at that time persist to this day.

The article does so by way of describing the childhood of Joel Klein, former New York City schools chancellor and now CEO of a Rupert Murdoch company selling technology and software to public schools. Klein has often used his life story to prove an educational theory—that poor quality teachers are the cause of disadvantaged children’s failures. The life story is that he grew up poor, in public housing, “a kid from the streets” with little interest in education until a high school teacher “saw something that I hadn’t seen in myself.” And this life story, Klein and his allies imply, proves that if only disadvantaged students today had the kind of teacher from whom he had benefited, they too would excel and succeed. Read more


Real hourly wage growth: The last generation

The last generation has been marked by a stark disconnect between productivity growth (up 80 percent between 1973 and 2011) and slow or stunted wage growth. The real hourly wages of the median worker grew less than 4 percent over this span, and real hourly compensation (wages and benefits) grew only 10.7 percent. The graphic at the end of this post parses this dismal wage record by gender, by wage decile, and by business cycle (wage dated updated through 2012, in June 2013).

For all workers, the erosion of real wages was broad and uneven from 1973 through 1995. The upturn of 1995–2000, the latter part of the 1989–2000 business cycle, brought a brief respite of across-the-board wage growth, some of which spilled past 2000 (although the wage growth from 2000–2007 skews much more to higher earners). The current recession and recovery (2007–2012) have brought with them wage losses for most workers.

For men, the pattern is even starker. Real wages begin falling for low-wage men in the mid-1970s, and this spread across all but the highest percentiles through 1979–1989 and through the first half of the 1990s (1989–1995). The late 1990s brings some relief, but this is short-lived: wage growth grinds to a halt in 2000–2007 and then loses ground—for all but highest earners—from 2007–2012.

For women, wage growth has been generally stronger. All wage levels show growth of at least 8 percent over the full 1973–2012 span, although the gains at the top (almost 60 percent for the 90th percentile, more than 70 percent for the 95th) are much more dramatic. Read more