Category Archives: Economy/Economics

Monday’s Mtg: Does Foreign Aid Work?

As most of you know, U.S. foreign aid is one of the least understood – and despised — government endeavors. Most people wildly exaggerate how much we spend. Most people think foreign aid is about 25%- 30% or more of the federal budget. The real figure is one percent, and more than one-third of that is security assistance, not economic aid.

There are also lots and lots of misconceptions and anachronisms in public perceptions of where the money goes and for what purposes. Forget sacks of grain for starving Ethiopians and well-digging in quaint little villages. We still do that. But American developmental assistance abroad is much more sophisticated and strategic than it used to be. We help to improve education, energy and food security, financial stability, regulatory regimes, gender equality, and much more. We also try to coordinate our assistance worldwide development goals, other countries’ aid, and private and non-profit sector developmental aid. Which countries receive the lion’s share of aid might surprise you, too

Yet, surely foreign aid’s small size and public ignorance about it do not by themselves justify the aid or prove that it works, for us or the recipients. Measuring success can be tricky and depends on the objectives, the performance measure, the available data – and the eye of the beholder. All of these were thorny issues back when I followed development issues slightly closely a few decades ago. I am looking forward to learning what’s new in measuring results. (I know there is now one office that coordinates our foreign aid.)

Since this is one of those some-details-needed topics I will open our meeting with a brief tutorial on (1) what we spend our foreign aid money on and (2) what the big goals are. Here are the questions I will focus on and some background readings.

A new schedule for June – Sept will be available.

DISCUSSION QUESTIONS –

  1. What: What does the USG spend its foreign aid funds on? Who spends it, doing what, and in which countries?
  2. Why: Goals, objectives, strategies.
  3. Context: How does our foreign aid fit in with other countries’, UN/World Bank/other IGOs, and private sector aid?
  4. Benefits: How do they measure success? Benefits to recipient countries. Benefits to USA including strategic/political. Which aid is vital versus elective v. obsolete/harmful?
  5. Alternatives to aid: Aid v. trade. Private charity and its limits. Etc.
  6. Public support and future: Why is foreign aid so unpopular? Does/should it matter? Will the need for it ever fade away?

SUGGESTED BACKGROUND READING –

NEXT WEEK: Lessons of the Six Day War, 50 years later.

Monday’s Mtg, Part 4: Where our tax dollars go.

Most of you know the broad outlines of this.  Here is a pie chart showing where the federal govt (2/3 of taxes go there) spends our tax dollars.  It is from the liberal Center for Budget and Policy Priorities.  For a breakdown of state and local spending in California go here.  For CA it’s basically 75% goes to five major activities: Education 25% + health care 20% + 10% prisons + 10% public safety + 10% welfare.  In most other states the pie chart looks about the same.

e USG Spending Pie Chart - CBPP

Monday’s Mtg, Part 3: GOP Tax Plans’ Impact on Tax Fairness

Now that Trumpcare is dead, he and the congressional GOP say they will move on to tax reform.   Tax reform could take many forms and end up quite different from the plans proposed by Trump and other Republican leadership, if it happens at all.  (And, again, who pays how much or saves how much is not the only thing that matters about taxes.)

Still, the Tax Policy Center (a think thank) estimated how the total tax burden would change under the Trump and House GOP tax reform plans, based on what was known n February 2017.  I can’t get the charts to paste into this post.  So, please see this NPR summary of the main findings here.

As you would expect, even though almost all American households would see some reduction in taxes under either proposal, the rich get much, much more tax relief.  According to the TPC analysis, the bottom 40% of households would get about a 1%-2% increase in after-tax income, while the top 1% of households would get a 13%-17% boost.

[Sunday key update:  Trump’s tax plan contains many, many hidden windfalls for the wealthiest earners and could raise taxes on millions of families, including via the corporate tax.   I’m sorry to pour it on, but truth is truth.]

And, this analysis does not even include the effects of the GOP’s proposed cut in the corporate tax rate or a “border adjustment tax.”  Off the top of my head, I would guess that since a BAT would be a lot like a sales tax on imported goods, it probably would hit working people the hardest, at least in the short run before trade patterns and exchange rates adjust.  To Trump, I imagine a BAT’s main appeal is that it privileges exports over imports.  But, to the House GOP members tentatively supporting it, a BAT’s main appeal is that it would raise enough revenue help make room for the other  tax cuts.  Corporate taxes tend to be passed through to consumers, so I’m not sure reducing them would change the overall tax burden much.  We’ll find out.

I’ll do one more quick post tomorrow with pie charts on what the federal government spends our tax money on.

Monday’s Mtg Part 2: How progressive is the U.S. tax system?

In tax policy, taxes are “progressive” if payers contribute more as a proportion of their income than they do lower income payers. Liberals like a progressive tax structure because they believe wealthier people (1) can afford the burden more, and (2) generally benefit more from the pubic goods that government supplies (like public universities and property right protections).

How progressive is the American tax system? Not very! Yes, federal taxes are fairly (albeit not highly) progressive, as this chart shows.

Progressivity of USG taxes - all

[Source]

So, leftwing paradise? Wrong. First, note only some federal taxes are progressive (especially income and estate taxes). Payroll taxes for Social Security and Medicare burden working people the most because they don’t apply above a certain level of income. Payroll taxes comprise almost ½ of all federal taxes paid (not shown on chart).

More importantly, about 1/3 of all taxes are paid to state and local governments. When they are included – so, all taxes at all levels – the burden of paying for government in America is basically flat as a share of income. This is because state/local taxes like sales and sin (tobacco, alcohol) taxes are highly regressive, so much so that every one of the 50 states has a regressive overall tax burden. Even California.  In seven states, the poorest 20% of people pay more than four times the rate the richest 1% pay!

This chart that includes all taxes at all levels shows the flatness.

Taxes paid and income earned by quintile 2016 - CTJ

[Source]

It breaks Americans into five income groups, from the bottom-earning 20% to the top 20%.  It also breaks the top 20% down into the top 10%, next 5%, next 4%, and finally the top 1%. For each quintile and very top, a pair of bars compares the share of total income each group earns to its share of total taxes paid at all levels. Note how closely what most groups pay is to what they,  on average, earn.  The richest pay a little more than their “fair share” when measured this way, and the bottom 40% pay a bit less.

There is more to tax fairness than what I have described.  And, fairness is not the only thing that matters in a tax system.  More on this stuff later.

Monday’s Mtg, Part 1: What Is a Fair Burden of Taxation?

I timed this topic in the expectation that the Republican Congress would have completed Obamacare repeal and be nearing completion of its first budget, with yet more large tax and spending cuts. Like everybody else I overestimated their competence.  President Trump just announced that repeal is dead and it’s time to move on to…more tax cuts (aka tax reform.)  Since by law the first major step in preparing the FY2018 federal budget must be completed by April 1 and the FY2018 budget is not even close to finished yet, now would be a good time for both the GOP and CivCon to focus on taxes and spending.

Radically altering who bears the burden of paying for the American government has been the GOP’s raison d’etre for 20+ years.   Obamacare repeal itself would have been a big tax cut on the wealthy and a big cut in subsidies for low-income Americans.  It also would have opened up room in the budget for the really huge tax cuts they were planning as the real centerpiece of GOP governance.  (I will explain how on Monday, or just see the link below.)   I guess creating such room is wasn’t worth walking the plank of taking away millions of people’s health insurance.

Anyway, even without all of this drama, a number of considerations would complicate our discussion of tax fairness. There is more than one way of defining what’s equitable, for instance. Beyond fairness, Public Finance 101 says that a good public finance system should have other features, like be as “efficient” as possible (minimally distorting to the private economy).  It should be sustainable and stable, simple,; and politically acceptable.  Oh, and no discussion of the costs of government makes any sense if it ignores the benefits of government. As I have mentioned 8 million times, informed citizens must have a rough idea of what and who our taxes are spent on.

For links, I’ll try something a little different this week. This post will stay at the top of the website all week.  It has the usual meeting discussion questions and a few short, useful introductory articles.

But, below it I will do 2-3 short posts. Each one will have one or two simple charts that illustrate something important about how high the tax burden is in the United States and who bears it. The idea is we need to know what is before we meet to debate what should be.

DISCUSSION QUESTIONS –

  1. Tax level/burden: What is the level and distribution of the tax burden now? Federal v. state/local taxes. Which types of taxes (income, corporate, payroll, etc.) cost the most? Who pays which taxes?
  2. Spending: Biggest programs and who benefits? Biggest misconceptions?
  3. Loopholes like the mortgage interest deduction are equivalent to spending. How are these “reverse tax burdens” distributed?
  4. Fairness: Ways of defining it + how should it be defined?
  5. Future:
    1. Short run: How and for whom does GOP plan to change tax burden?
    2. Long run: How should/will burden be shared?
    3. What changes to tax fairness would Americans accept?

SUGGESTED BACKGROUND READING –  

NEXT WEEK: Which moral standards should we use for judging historical figures?

Monday’s Mtg: The Uses and Abuses of “Pop Economics.”

Rich suggested this topic. I wish I had, because I think it is one of our most important topics in years. The way basic, introductory-level economics has been abused to make bad national policy has been a pet peeve of mine for many years.

Sure, all rhetoric in politics is kept sound bite and bumper sticker-friendly. (Not to a fourth grade level like Trump’s rhetoric, perhaps, but still.) And, everybody does it. “Our borders are unguarded/open.” Liberals aren’t patriotic. Neoconservatives love war.

But, when it comes to rhetoric –and policy, too – concerning economics, something much, much more pernicious goes on. It has been called the problem of “Econ 101ism” or “Economism.” Economism, to quote the coiner of the term, is “the misleading application of basic lessons from Economics 101 to real-world problems, creating the illusion of consensus and reducing a complex topic to a simple, open-and-shut case.” For years I’ve seen way too many politicians (and their pundit and journalist enablers) use over-simplified – and thus often inaccurate – Econ 101ism as a kind of Gospel that fully explains how the world really works. They use its “lessons” to show what correct government policy has to be and anybody that disagrees doesn’t understand economics.

Everybody does Economism sometimes. Liberals sometimes indulge in it when thinking and talking about international trade and, less often IMO, about macroeconomics (govt spending levels). But, as the articles below explain better than I will on Monday, there is something about Econ 101’s easy, breezy, oversimplified analysis of how markets work that easily seduces conservatives.  All those pretty supply and demand curves leading to ideal equilibriums without ever a need for government interference.

Again, I don’t mean this topic to be about economic polices and rhetoric that I think are wrong.  I mean it to be about those that are wrong for one particular reason: They are based on a belief that the highly simplified textbook explanations of how markets work should tell us all we need to know about what policies should be.  Econ 101ism, to me, is too often a shield for preferences that based on other things, like ideology and moral beliefs. .

I’ve tried to keep the linked readings fairly easy and, well, breezy. They oversimplify, too, but get the idea across.

DISCUSSION QUESTIONS –

  1. What does Econ 101 teach about how markets and govt interference in markets work? What important things does it gloss over?
  2. In what big ways can well-meaning political advocates misinterpret the lessons of Econ 101?
  3. How do the lessons of Econ 101 get misused by politicians; i.e., what is Economism?
  4. What are some good examples of Economism in action on the Right and Left?
    –> In tax policy? Financial regulation? Trade? Wages and labor markets? Health care? Education?
  5. How can seductive rhetoric based on Economism be effectively countered?
  6. What’s the “other side” POV here? Is Econ 11ism not a big thing?

SUGGESTED BACKGROUND READING –  

Conservative use of Econ 101ism

Liberals use of Econ 101ism –

Special Topics in Econ 101ism –

NEXT WEEK: What beliefs have you changed since you were young?

Monday’s Mtg: Have Elites Failed Us?

Several members of our Meetup group asked what I had in mind by “elites.” I deliberately left it undefined to make a point. Americans have some very different ways of defining the horrible, no good elite that everyone supposedly voted to overthrow. In fact, I think vast differences in the way we define our elites lay at the core of our political polarization even before we elected Donald Trump president.

Trump’s populism claims to be a call to arms to overthrow the “Washington establishment” and its collaborators here and abroad. As he said in his inaugural address (in between the talk of carnage and despair):

“For too long, a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost. Washington flourished, but the people did not share in its wealth. “

Trump’s parasitic elite seems to be our national governing elite, the establishment politicians and the permanent “deep state” that they command. His Hellish vision of a collapsing America sold out by its own elite is pretty stark, that’s for sure.

But, how specific is it, and how accurate?  Who exactly are these quislings and what did they do, and to whom? Maybe history helps. When CivCon discussed modern American populism last June, I noted that populist movements everywhere share a basic characteristic. They identify some despicable, self-dealing elite that exploits the virtuous but powerless masses. The elite is not only privileged; it is unfairly privileged. The elite can be a real or imagined; Its victims all of “the people” or just a subset.

Moreover, Right and Left populist movements in U.S. history usually pick a different elite to resent and not quite the same “We, the people” to champion. Left-wing populism’s villain is concentrated private power, like the Robber Barons and their trusts or today’s giant corporations and the 1% that help them rig the game for plutocracy’s sake. Its victims are everybody else (well, except people of color, until recently), but especially the lower classes and the poor. In contrast, right-wing populism has tended to see a conspiracy of both the top and the bottom against the middle. Its corrupt overlords are government insiders helping an undeserving underclass and/or foreigners redistribute wealth and cultural prestige away from hard-working real Americans.

I’m not trying to dismiss this whole topic nor one side’s POV. Quite the contrary. I feel confident in saying that elites have failed the country, as do large majorities of Americans in poll after poll going back years. But, I am pretty knowledgeable about this stuff. I believe I can connect our country’s worst problems to specific failures by the people with all of the power and influence. I picked this topic so we can explore why just about everyone else thinks the same – even though they seem t disagree about who the elites are and what they are doing wrong and why.

We have plenty to talk about on Monday.  Here are some discussion ideas and readings.

DISCUSSION QUESTIONS –

  1. Who are America’s elites? Are there multiple elites with different interests and power sources, such as…
    1. Economic class versus social/cultural elites.
    2. Racial and ethnic elites?
    3. Educated and regional/cosmopolitan elites.
  2. Do our elites perpetuate power unfairly, or are they a meritocracy?
  3. Why is everybody so mad at elites? Do Americans agree on who to be mad at and why?
  4. Are elites indeed responsible for the mess we are in? Why?
  5. Is Trump just scapegoating? What should/could be done to reduce the power of American elites?

SUGGESTED BACKGROUND READING –  

 

NEXT WEEK: A change of pace – What’s going right in the USA these days?

Monday’s Mtg: Should We Raise the Minimum Wage?

I had this idea for us to do a series of meetings in the run-up to November that highlighted the starkest policy differences between the two presidential candidates. Oops. Donald Trump’s candidacy and Media’s obsession with horserace trivia make that pretty hard to do. Trump’s policy platform involves him basically riffing a stream of consciousness on whatever topic an interviewer brings up, hoping to run out the clock before anyone notices he has no policy ideas at all nor a rudimentary grasp of the issue.  No one seems to know exactly what Trump’s position on the minimum wage is, much less what it might be tomorrow or in a face-to-face debate with Clinton.

But, I’m not sure it really matters. As I keep hammering away at week after week, we are electing a political party to govern us more than an individual. And, the Dems and GOP at all levels hold irreconcilably-opposite views on the minimum wage. The Republican Party is wholly opposed to raising the minimum wage at all. Period. Many conservatives would prefer it be abolished or reduced, although I doubt they would take the political risk of trying it at the federal level. Marco Rubio and Ted Cruz oppose any federal minimum wage.

In stark contrast, Democrats really, really want to raise the minimum wage, either nationally or in as many states as possible. Hillary Clinton campaigned on raising it by 60%, from $7.25 to $12 per hour, to be phased in over several years. This would be the largest such increase in history. Under pressure from Bernie Sanders, Clinton stated she would sign a $15 minimum wage bill if a Democratic Congress sent one to her. This would double it.  This November 8, minimum wage increases are on the ballot in five states.  Democrats want to make this a wedge issue – one that motivates base voters to turn out – like Republicans did with same sex marriage bans in 2004.

Luckily for us, the debate over what would happen if the minimum wage were raised significantly is not all theoretical. The current federal minimum wage is just $7.25 per hour, one-third lower in inflation-adjusted terms than it was in the late 1960s. However, 29 states have a higher minimum wage, 12 of which are over $9.00 per hour. California’s is $10 – the nation’s second-highest –and Brown just signed a law to raise it to $15 in 2022. This means that lots of studies have been done comparing places that have raised the minimum wage to those that have not raised it. The results are generally encouraging to the liberal economic case for raising the wage. Yet, as I will explain, it’s not quite that simple.

On Monday I will open with a brief tutorial on the minimum wage and the types of questions we should be asking about what might happen if we raised it to various levels. I don’t think lowering the minimum wage is really on the table right now as a viable policy option, although if Trump wins, all bets are off.

DISCUSSION QUESTIONS

  1. Current policy:
    1. How high are U.S. minimum wages now and how high are they due to rise in some states?
    2. What else does govt do to support working poor? How important a policy tool is the minimum wage in comparison?
  2. Arguments: What arguments are used to support and oppose raising/lowering/ending the minimum wage
  3. Evidence: Based on history what affects would raising min. wage have on:
    1. Helping people: Raising incomes of the working poor, reducing poverty and reliance on govt transfer programs.
    2. Hurting business: Killing jobs, raising prices, other business decisions (like replacing workers with machines).
    3. Would more spending on other govt programs (EITC, etc.) do more to help the working poor than raising the min. wage?
    4. Can we predict what would happen if we abolished the min. wage?
  4. Fairness:
    1. Will raising min. wage really put a dent in inequality?
    2. Will it make low-wage pay more “fair?” What’s fair?
    3. Does the minimum wage subsidize big corporations more than it helps the poor (they can keep paying low wages)?
  5. Politics: Is this a winning issue for Democrats or Republicans? How big a winning issue?

SUGGESTED BACKGROUND READING –  

Next Week (Sept 26):  Progressives’ Constitutional Philosophy.

Monday’s Mtg: Do Government Anti-Poverty Programs Work?

This month marks the 20th anniversary of federal welfare reform. The 1996 law drastically limited assistance under the U.S. govt’s largest welfare program, Temporary Assistance for Needy Families. Since then, a lot of other changes have been made to our anti-poverty safety net. Yes, TANF was gutted, but other programs have been created or expanded to make up the slack, and the whole system is now better targeted to incentive work and to reach the truly needy.

Still, perhaps welfare reform’s main accomplishment was political. It de-weaponized welfare as a high-profile, partisan issue in American politics. Rising poverty and inequality levels may bring it back, but it hasn’t yet. And if it ever does, most Americans will be just as easy to manipulate as before because few of us know anything at all about this part of government. For example, did you know that

  • The biggest and most effective ant-poverty programs by far are Social Security and Medicare?
  • Govt spending per poor American has gone up in recent years – not down as most progressives think?
  • Benefit levels are pretty paltry, and the biggest poverty programs do incentive work – contrary to what most conservatives think?

Given these and many more public misconceptions, I thought it might behoove us to devote an evening to taking a big picture look at how the government combats poverty in America and how effective it is.

I am a bit pressed for time this week (inc. finding you good, analytical links). Here are some discussion questions I will use to guide our meeting on Monday, and some background readings on anti-poverty programs and their effectiveness. My opening remarks will describe the largest federal and state govt anti-poverty programs and make a few points on the issue of effectiveness.

DISCUSSION QUESTIONS

  1. What are the main federal/state anti-poverty programs? How much do they spend and who gets benefits?
  2. What is their purpose? How is aid targeted and conditioned? Temporary v. permanent help? Cash v. non-cash benefits?   “Making work pay” v. helping non-working poor?
  3. (BTW: Why are there so many poor Americans, anyway?)
  4. Effectiveness at…
    1. Reducing poverty and helping the helpless?
    2. Targeting the “right” people.
    3. Incentivizing work?
    4. Keeping social cohesion.
  5. Problems with…
    1. High program costs.
    2. Dis-incentivizing work.
    3. Subsidizing low-wage employers, like Wal-Mart.
    4. Minimizing fraud and abuse.
  6. Past and future:
    1. Did welfare reform “work?” For whom?
    2. Future alternatives to / expansions of poverty programs.

SUGGESTED BACKGROUND READING –  

How much do we actually spend reducing poverty?

  • It depends what you count as “welfare” and exaggeration is common. Recommended.
  • A conservative group counts up the total.
  • [Update: Is entitlement spending for lazy people growing out of control?  No, it is not: 91% of entitlement spending goes to the elderly (50%), the disabled (20%), or the working poor (20%).  Only 9% goes to non-working, non-disabled adults.]

Impact of anti-poverty programs –

Conservative POV –

20 years after welfare reform:

Worldwide Poverty –

Next Week (Sept 5):  Will President Obama’s Achievements Endure?

 

Monday’s Mtg: Why Has Economic Productivity Slowed?

It is Econ 101 that ever rising labor productivity is the key driver of modern economies. When the amount of output per worker is higher every year than the year before all of the good stuff that Americans have come to expect is possible. The economy grows steadily with room for higher wages/benefits and consumer spending, business profits, savings and investment, and enough tax revenue for government to meet public investment and social needs. Without rising productivity, the economic pie stops getting bigger and we are all left fighting over the size of the slices. A zero-sum economy begets zero-sum politics, and we all look around for someone to blame.

Sound familiar? It’s starting to happen. Worker productivity roughly doubled in the USA from 1945 to the early 1970s, then slowed down for the rest of the 20th century. But since then it has slowed to a crawl, only growing about 0.5% annually since 2000. In 2016, productivity actually began falling.

Now, maybe the fall is temporary, an artifact of the Great Recession. Maybe it is not happening at all. There is some evidence that the way experts measure labor productivity fails to capture some important improvements in the quality of the goods and services workers produce. Maybe.

But, there I another problem independent of measurement error. Even before U.S. labor efficiency slumped, American workers were not getting paid in line with what they were producing. Since 1973, U.S. workers have become 75% more productive, but average worker compensation (pay + benefits) grew by less than 10%! When liberals say rising inequality is unfair, this is what we mean. It’s not some philosophical judgement of how much people are “worth” to society. How well do you think regular people will fare if, on top of this unfairness, the productivity slump persists and the pie stops growing altogether?

So, this is not a dry topic about formulas and equations. It is about what makes our economy healthy and innovative and how we can ensure that regular Americans share in the wealth they produce.

To keep us focused, I will start us off on Monday with a quick summary of:

  1. What is meant in plain English by labor productivity and what really drives it (opinions differ on the latter); and
  2. The main theories of why it has stagnated recently and whether we have a long term problem.

Then, we can debate any aspect of this broad topic-of-everything we want to discuss. The main driver of productivity in the long-run is technological innovation, but other things matter, too, including public policies.  I hope we can devote a good chunk of time to discussing the growing divergence between worker compensation and productivity. But, keep in mind that any public policies to close that gap need to do so by raising the former, not reducing the latter.

DISCUSSION QUESTIONS –

  1. Measuring it: How do they measure labor productivity? Could it be growing faster than experts think?
  2. Ensuring it: What keeps U.S. labor productivity rising; e.g., healthy biz/entrepreneur climate, R&D/Universities, tech innovation, worker edu/skills, government action/inaction?
  3. Problem. Why has productivity suddenly cratered? The recession?
  4. Problem! Is something deeper afoot? Are we entering a prolonged period of “secular stagnation” like we talked about in 2013?
  5. Problem!! Why has pay not kept up with productivity for decades?
  6. Solutions: Which pubic policies might (a) goose worker productivity in the short-term and long-term, and (b) ensure American workers benefit from it? Left vs. right solutions.

SUGGESTED BACKGROUND READING –  

Productivity Puzzle –

Solutions?

Next Week: Do government anti-poverty programs really work?