Short: Who rigged the economy?

I was really hoping that I would get some good insights into how the economy was rigged from this article. After all, it's published on Vox, one of the better site for political analysis.

Alas, the article is a big disappointment. When I wonder which people are using the rules or gaming the system to enrich themselves, I think about politicians, developers, Wall Street types, etc. I was hoping to find out more about how they do it. Instead, this article points at these enemies of fair economics:

• Dentists
• Owners of beauty schools
• Massage therapists
• Arkansas and its laws on nurse practitioners

WTF? These are the people who have rigged the system so that there aren't many good jobs anymore? The author can't seriously expect me to believe this, can he?

Instead of this being a tell-all article, this reads like a low-rent libertarian rant against licensing. Such rants have their place, but licensure isn't what has rigged the economy. Come on!

Then I did a google check of the author, Will Wilkinson. Yep, he used to work for the Cato Institute. The article is exactly a low-rent libertarian rant. And I wasted my time reading it.

Short: What is the 1%?

If you work hard, save your money, and don't run into bad luck, can you propel yourself into the 1%? Those characteristics describe my family (along with having good education and middle-class jobs). So, I wondered, could I possibly be in the 1%? There are times when I feel maybe I could be or should be. (One of those times is right now, after a hard week at work and me finishing up my tax returns. Shouldn't my hard work and careful ways have raised me up?)

Well, not according to this. You need at least $5 million not including your house and $500K of income yearly. Oh well... maybe in the next life if there is one.

Mercedes Benz - favorite car of the 1%

Image: malligadu.com

Short: China prediction

Here's a fascinating article that predicts that China won't get rich as the western countries have. Why not, especially as they've become a high-tech manufacturing giant at the expense of the US and other countries?

The average income in China was depressed by colonialism and then by Maoist communism, so the Chinese have a big gap to overcome. They've certainly been working on that gap, but it's not going to be easy to break into the rich club now. Some aspects of China will hold it back, such as corruption, zombie companies, and property laws that are less than favorable.

I would guess that its massive size will also hold it back. Can that many people become rich? It seems to me that income equality is the more likely outcome. Just look at the rising income inequality here in the US.

Image: capitalisticons.com

Extras. Based on a less-focused Brad DeLong article. Also, look at the difference between being rich on average and being rich at the median.

Try this experiment with Google

I was thinking about our country after looking at a photo of a scene in Ferguson, Missouri, which was the site of a police shooting and subsequent protests for several weeks (and also some rioting and looting), It seems that Ferguson is pretty peaceful again.

The photograph was of a family walking with bags from the Family Dollar store, a store specializing in inexpensive merchandise.

Image: wpxi.com

I really liked this photo. To me, it looks like the family bought themselves some inexpensive goods, maybe including a few treats. These are regular, unpretentious folks. I like that we have diversity in this country--the rich, the middle class, the lower middle class, the working poor, the non-working poor. We have them all, and I'm not at all ashamed of that.

In that train of thought, I decided to find images of "poor people in Sweden." It's a very disappointing search. There are pictures of Swedish aid projects in climates where palm trees thrive. Are there any pictures of poor Swedes? No.

Not even Bloomberg Businessweek could find a picture. Here is their take on the gulf between rich and poor in Sweden:

Image: businessweek.com

The "poor" house on the left is a historic example of a house from over a century ago. I did find a few articles: about riots that involved the poor and immigrants, begging, and Roma shacks being demolished. Among native Swedes, poverty is gone, I guess.

I doubt that Sweden is a good exemplar that the US could follow, however. It's a much smaller country, and not the melting pot we are. We are who we are, a very mixed bunch. I'm ok with that.

Too many workers

We've come to a major turning point in history. Our economies, throughout most of the world, can no longer absorb our population increases and provide an increasing number of jobs. While there have been periods of high unemployment before in history, they've been reversed. I don't foresee that happening at all in the future. We are permanently in a situation where we have many more workers than we need, and there's no way for the extra workers to join the regular economy at the full-fledged rate.

Looking just as the US, we have the lowest worker participation rate in 36 years.

Labor Force Participation Rate 1948 - 2013

Image: businessinsider.com

We have high unemployment among our young people, and that's a worldwide problem. It's certainly possible for jobless people to be productive (cleaning, doing small repairs, gardening, teaching, etc.), but not at the going rate. So this extra labor force can work in the gray economy, work at home or in family businesses, or can volunteer, but they must be supported by others--those who are working at market rate jobs.

Why don't paying jobs exist for these people? Because our economies have become much more automated. It's been a goal in innovation to automate actions instead of having workers perform them. I go to an ATM machine instead of the human bank teller earning a wage. An ATM costs $2k (according to the ads on Google). That's a lot less than a teller's yearly salary. Ordering is automated online, saving the cost of a order entry clerk. Crops are planted and harvested with the help of huge machines, shrinking the number of farmers to 2% of the US population.

Too many workers? Yes, and too many people.

With all this equipment, we just don't need as many workers. So what should we do? There's a logical answer, but most people don't want to admit it: we need fewer workers, thus we need fewer humans. We should be shrinking our birth rates. Our birth rate should be lower than the replacement rate--yes, lower. Not zero growth, but negative growth, meaning contraction of the human population. If we don't do this, we will continue to have too many workers for the rest of foreseeable future, barring global cataclysm.

What are the downsides of fewer children and lower human population? Many people don't like the policy. Their cultures emphasize having children to carry on their legacy and take care of elders. It's hard to counter the cultural norms, but that doesn't mean that the cultural norms are logical or well-adapted to our current situation.

We'll have fewer people paying into Social Security, but we have to face that anyway. The huge baby boom generation is an anomaly that shouldn't become the norm just due to worries about how pensions are going to be paid. Besides, if there aren't enough jobs, those unemployed people aren't contributing anyway.

Suppose we underestimate the number of workers we need, and we create labor shortages due to a labor pool that's too small? That's not a big problem. We can either import workers or we can increase our birth rate to correct the problem. As we've seen, we can increase our population very quickly when we want to.

I'd like every country to decrease their birth rates, and they are. Two decades ago, few countries were reproducing below replacement rate. At that time it was considered a dire situation, but it no longer looks that way. Now many more countries are running below replacement rate. That's a good thing ... especially if we want to avoid more of this.

The lucky one has a metal roof (Bangladesh).

Image: paveldospodinov.com

They pray for a rectangular shack instead of a lean-to (Bangladesh).

Image: theguardian.com

Apartment blocks don't solve the problems (Cairo).

Image: ahlu-sunnah.com

Update 12/26/14. An article from The American Conservative pointing out that no one (despite political parties' claims) seems to know what to do about these economic problems.

Who pays taxes?

Do lower income people pay their fair share of taxes? Look at this graph from the Heritage Foundation, a conservative think tank:

Image: heritage.org

Wow, the lowest 20% of earners pay almost nothing in taxes. The top 20% bear, let's see, 69% of the tax burden. How horribly unfair.

Until you look at this graph:

Image: mayfieldeconclass.blogspot.com

Here we see that the top 20% may pay 69% of taxes, but they also suck up 50% of all the income. The richest fifth get half of the pie. How much of the pie do the lowest fifth get? Just 3%. How much of the tax burden should we expect them to bear?

Before you complain about how little some folks pay into the system, look at how little is paid to them.

The Rich should be worried

The Rich is this country are doing well, unlike many of the rest of us. Many of us in the middle class suffer from lack of jobs, insecurity of future decent-paying jobs, and diminished prospects for us or our children. The working class has their prospects diminished too.

But it's the Rich who are moaning the loudest on some days. Perkins infamously wrote in the Wall Street Journal that he feared a Kristallnacht against the wealthy. To me, this seems like an overreaction and bitching about taxes going up on the wealthy, but those taxes still aren't terribly high. Romney paid only 14%, so a rise to 20% (the new capital gains rate) hardly seems like a major hardship.

I wish the Rich had more to worry about. The kings of financial firms should be sweating in non-country-club cells while federally appointed special masters hunt down and liquidate their assets. People are rightly pissed at the execs at Wall Street firms, GE and other huge companies that play the tax code like squash, energy giants like the Koch brothers, hedge fund managers and clients, and the foolish, spoiled rich like Sheldon Adelson who think they can buy elections.

People like Jeff Bezos, Bill Gates, Apple execs, Oprah Winfrey, and George Lucas don't have anything to worry about. They created great things that we all enjoy, and got rich in an honest way. That's not true for the others. The GOP may have labeled them "job creators" but that's proved disgustingly hollow.

Americans aren't mobs, rebels, or robbers, yet some Rich are stupidly worried. The U.S. has never had a French Revolution-style uprising, much less one like the Russian Revolution. Even in the midst of the Great Depression, the poor continued to let the Rich be rich. Little Orphan Annie adored Daddy Warbucks instead of wanting to whack his head off, and that reflected the general population.

So why are the Rich so worried? I don't care. They have a lot more resources to slow or soften their fall than I do (as I have much more than the average American). If need be, I'll live on much less and I won't bellyache like these Rich.

We are all facing living with less. Why do the Rich think they have the brunt of it? Nothing could be further from the truth. So why the angst? In this column (and an earlier one) a leftish pundit tried to figure it out. This is what rang true to me:

It is that mix of insecurity, a sense of the brittleness of one's hold on wealth, power, privileges, combined with the reality of great wealth and power, that breeds a mix of aggressiveness and perceived embattlement. . .

But over the last few years (since 2008), I think there's been a pretty dramatic growth in what we'd call Tea Party politics in that set - extreme conservatism . . . the kind of feverish mindset in which you could write with a straight face that progressives might be building toward some sort of mass wealth confiscation or internment or even extermination.. . .

Image: bradblog.com

Extra. Wealth concentration is normal. No surprise that the powerful try to maintain their power.

The New Year of Inequality

Welcome to another election year. Even though it's only a mid-term election, it's going to be nasty because all elections are nasty now.

The Dems have a major vulnerability in the various troubles of Obamacare, but that's not enough for an entire campaign season. It's too bad for the conservatives who thought they could run non-stop bashing Dems on Obamacare and Benghazi. Those really aren't enough for a campaign when the economy is weak and people need jobs. Somehow, when you or someone in your family needs a job, that trumps political talking points. Maybe because people do have a sense of the real priorities.

The Dems see this, or perhaps they desperately want to talk about something other than Obamacare. They decided that they're going to talk about inequality--the fact that some people are making millions in this economy while you or someone close to you struggle to find a job. The argument has a lot of potential, but also some risks, like "what can you (the Dems) do about it?"

Lies, Damned Lies, and Exaggeration

Before looking at what the Dems actually say on the issue, it's fun to look at how the GOP characterizes what the Dems really want:

• Dems are just stoking envy, that most terrible of sins. 
• This is class warfare, I tell you!
• This is a prelude to confiscating wealth.
• Well, maybe they won't seize wealth, but they'll end personal savings.
• They'll nationalize healthcare, banks, the auto industry, and... No, wait, they already did. 

It never ceases to amaze me how conservatives shoot themselves in the foot with such exaggerations, and then do it again in the next election cycle too.

What do "they" really want?

So what are the Dems actually saying they'll do about inequality? To start, they want to extend unemployment benefits beyond the standard 20-some weeks. They want to maintain social programs like food stamps at the higher levels enacted as part of the stimulus. They want to enact higher minimum wages, both locally and nationally. They want to maintain healthcare for all, so you can still see a doctor even if you can't find a job. Maybe they still want universal pre-K, or perhaps that was just last year's failed social agenda item. I doubt they'll revive the half-trillion-dollar jobs program, which was 2011's failed agenda item.

The Dems aren't saying how they'll fund the programs that aren't already funded--that's a return to type for the Dems. One exception is the new progressive mayor of New York City, Bill de Blasio. He wants to fund pre-K through a minuscule tax on the wealthy of NYC. The wealthy in NYC already pay higher federal taxes, higher state income taxes, and even city income tax. Why worry about taxing them even more? After all, INEQUALITY!!!!!!  (Rhymes with BENGHAZI!!!!!!)

Sorry for all the snark. Briefly, I support an increased minimum wage, healthcare for all rather than a return to the pre-Obamacare mess, but not a national pre-K program or maintaining the bonuses to social programs given out in the stimulus. I think one year of unemployment insurance is the maximum people should receive, not year after year.

From the Party of the 1%

Somehow, a few in the GOP realized that they might have some vulnerability on the inequality issue. It is hard to dismiss it purely as envy when what people want are jobs, not to throw the rich out of their mansions and behead them. Some in the GOP thought that Romney lost the presidential race over his 47% remark--I disagree, but it doesn't help when the billionaire Koch brothers are on one side of the GOP's internal war and the Chamber of Commerce and establishment/CEOs are on the other side. The GOP could stand to appear more compassionate, both for the 2014 election and the next general election (thanks, Atlantic Wire, for pointing this out).

So this was the week that the GOP trotted out their ideas for anti-poverty initiatives. They include no minimum wage increase, a reworked Earned Income Tax Credit (questionable whether it would be better), repeal of Obamacare (because it's part of every GOP domestic proposal), turning anti-poverty programs into block grants, and more school vouchers.

What We Need More Than Anti-Poverty Plans

Neither the Dem nor the Republican proposals sound very effective to me. A wage increase puts a bit more money in workers' pockets, unless it costs you your job, but that doesn't happen often. As for block-granting anti-poverty programs like food stamps, housing subsidies, etc., I don't care strongly. None of these programs seem to help people get out of poverty, they only help them endure it.

What's really needed are a lot of jobs with decent pay, but that is what our economy has been exporting for four decades. The Dems don't have a plan to change it, neither do the Republicans, and neither do I. When wages are so much lower in other countries, no one is going to have a good plan.

I wish we could be Germany or Sweden, having a mixed economy of high-margin, high-quality goods and good-paying jobs. But I don't think we can do that. That niche may not be large enough to accommodate a nation of 300 million. So I wonder whether we're actually on our way to being a middle-income country like Brazil.

Maybe we were always bound in that direction. When factory owners encouraged lots of immigration, they weren't trying to turn them all into middle-class consumers. No, they wanted cheap labor. So we accidentally became a rich country, but we've always had a large pool of cheap labor. If there weren't enough cheap American-born workers, we managed to bring cheap workers in, legally or illegally. So being part of a pool of cheap, excess labor is more our birthright than being a rich country. Ironically, they don't teach you that in school or say it on the campaign trail.

If we really want to be a rich country, we may have to change in fundamental ways, including ending our tradition as a nation of immigrants seeking the American dream. I don't think any of our candidates will get close to that particular discussion. It's probably political suicide to say the American dream is over.

Image: frumforum.com

Why do Democrats love tax increases?

So the Democrats got a substantial tax increase on the wealthy at the beginning of the year. That should be enough for the fiscal health of the country, right?

Not according to most of the Dems out on speaking tours these past few weeks. From Obama on down, they are saying that the federal government needs even more revenue. If that's true, we have to wonder why the Dems didn't get that extra revenue in the fiscal cliff negotiations. Here some speculative ideas about why the Dems want that revenue:

1. The Dems want to set the precedent that all deficit reduction will be a mixture of spending cuts (cuts below the current baseline, which is in an upward trajectory) and revenue increases.
2. Dems want to kill off the GOP preferred method of deficit reduction, which is by spending cuts only, with no revenue increases except from economical growth.
3. Dems want to force the GOP to capitulate to the Dem's preferred deficit cutting approach, and thereby humiliate the GOP.
4. Dems don't want to be humiliated by the GOP if it ends up that government can be cut significantly without huge gaps opening up in the social safety net.
5. Dems are concerned about the growth of income inequality and the reduction in broad, well-paying employment, and they want to even out the inequity using taxation to supporting public provision of standard benefits.
6. Dems are protecting their loyal constituencies of government workers and those who received federal benefits.
7. Dems honestly believe that the cuts will be devastating to government services that we depend on, so the sequester is too deep.
8. Dems always want to raise taxes and spend more on government programs, and they don't even remember why.

Obviously I don't know the talking point reasons the Dems give for needing higher revenue, and I'm getting more and more exasperated as I try to figure out the reason. If you're wondering why I can be so nasty to the Dems just 4 months after supporting Obama's reelection, I'll remind you that the GOP proposals were even more dangerous and ridiculous.

I may be getting the government I voted for, but I never had a chance to vote for the government I really want. (That's true for lots of people--just ask a libertarian.)

Image: democrats.org