Rant.

In terms of GDP the United States has the largest economy in the world: $17 trillion. China’s GDP is $10 trillion, with 2-3 times as many people, so China’s per-capita GDP is pathetic compared to the US.[1]

In terms of after-tax household income, the US just wipes the floor with other countries: the US average is $41,355, while the median for Organization for Economic Cooperation and Development (OECD) countries is $27,630. So the US is like 50 percent higher than the median. That means that it drags the median upward by its high household income, so most OECD countries have family incomes even lower than in the US. .

People are quick to point out that American success is all quantitative, rather than qualitative. Americans work way more than do “normal” people: an average of 46.7 hours a week. They get less sleep, have less family time with their ingrate kids, have wives who have let themselves go, and about 35 percent of Americans are obese.[2] American society may be rich, but it is very unequal, which may be a factor in high poverty rates. Also, there are signs of “moral decay”: Americans trail only Mexico and Chile in pregnancy rates among 15-19 year-olds. Then there is all the violence: only Mexico has a higher murder rate per 100,000 people—and Mexico has drug gangs run amok. Only 74 percent of Americans, Serbs, or Egyptians felt safe walking alone at night.

Is there an alternative model? Yes, either Scandinavia or Central America. Panama, Belize, and Costa Rica all out-pace the US in reports of “daily positive experiences such as smiling and laughing, feeling enjoyment, and feeling treated with respect each day.”[3] More concretely, Scandinavians (Danes, Norwegians, Swedes) accept paying much higher taxes generally than do Americans in return for a comprehensive social safety net.[4] Top earners pay 57 percent, but—and this will freak-out Democrats—middle-income earners pay up to 48 percent of their income in taxes.[5] Consequently, the price of consumer goods is higher and the purchases of consumer goods are less. On the other hand, if you’re playing by the rule that “the one with the most toys when he dies wins” or if you listen to economists who argue that the great American demand for consumer goods is what drives the world economy, then you have to hate the European approach.

Regardless of what European leftists insist, the American definition of happiness isn’t just about quantitative measures over qualitative measures. Americans value individual freedom and choice more than do people elsewhere, and this makes them insist on the importance of individual self-reliance and accountability more than do people elsewhere. Americans believe that progress in life, measured in economic terms, validates an open society and a competitive economy. This is why the “recent [economic] unpleasantness” has been such a trial for Americans. It is astonishing that most of the Republican presidential candidates can’t see this.

See: https://www.youtube.com/watch?v=q49NOyJ8fNA

[1] “How America rates,” The Week, 27 November 2015, p. 11.

[2] Only 4 percent of Japanese are obese and that’s including all those sumo wrestlers.

[3] This explains all the reports of Yankees getting caught trying to cross into Mexico. See: https://www.youtube.com/watch?v=0-N9L3ZXWPA

[4] Actually that term is deceptive. Americans mean that they have to catch and carry the screw-ups. Scandinavians mean a system for enabling each person to live a productive and socially-useful life. These different meanings reflect different beliefs about human character. Jury is out in my view.

[5] So, good-bye “middle class tax cuts” beloved of both parties and the Obama confirmation of 98 percent of the George W. Bush tax cuts looks politically expedient without being fiscally prudent.

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Inequality 7.

According to the CIA, income inequality in the United States now is more extreme than in Red China.[1] So what? What matters is that a “rising tide lifts all boats,” as JFK said when arguing for a tax cut. However, some economists argue that the evidence for this “true that” statement is sketchy (as young people used to say). President Clinton got Congress to raise the top tax rate from 31 percent to 39.6 percent and the economy boomed (admittedly with the “Tech Bubble” that collapsed after he left office); President George W. Bush got Congress to cut taxes on high earners to 35 percent, but the economy floundered (admittedly with the “Housing Bubble” that collapsed before he left office). In this analysis, what really matters is the amount of demand for goods in the economy. That is an argument for shifting resources to consumers.

The “Great Bull Market” of the Twenties (and other stuff that pundits don’t want to know about) led to the Great Depression. The Great Depression led to the New Deal and 20 years of Democratic dominance in Congress. The Depression discredited businessmen as prophets-of-the-New Era. The New Deal imposed all sorts of restrictions on business and raised taxes on the rich swells (who were in some vague way blamed for the Depression). By the 1950s the top rate on marginal incomes had risen to 91 percent, essentially a confiscatory tax on high incomes. Proponents of relative income equality point to this period as the ideal society because it coincided with the period of American economic ease. Good-paying working-class jobs allowed many people with only a high-school diploma to enter some version of the middle class.

However, the Great Depression ended in 1940. By the 1970s a whole new generation of businessmen had come on the scene. They were unburdened by the sins of their elders. They campaigned for a reduction in the punitive tax rates of the New Deal era. One can see this as Republicans responding to the Democratic strategy of “tax, spend, elect” with their own mantra of “tax-cut, spend, elect.” In theory, savings create investment capital and investment capital creates jobs. Therefore, the tax rate on capital gains fell to 70 percent in the 1970s, then to 50 percent in the first Reagan administration, and then to 28 percent in the second Reagan administration. Bill Clinton pushed for and won a reduction in the tax on capital gains from 28 percent to 20 percent. George W. Bush pushed for and won a reduction in the tax on capital gains from 20 percent to 15 percent. However, President Bush also pushed for massive cuts on taxes paid by lower income groups.

Two things resulted from the Bush tax cuts. First, the US government lost $400 billion a year in revenue. Of this lost revenue, “only” $87 billion came from people earning $250,000 a year or more. The other $313 billion came from people earning less than $250,000 a year.[2]

Second, taxation became much more progressive. While cutting taxes overall, Bush shifted the burden of taxation onto upper income earners. After the Bush tax cuts, the top 1 percent of income-earners now pays 40 percent of the income tax bill (and 21 percent of all taxes), while 47 percent of Americans now pay no income tax at all.[3] Despite his bitter condemnation of the Bush Administration on many scores, President Obama fought hard to confirm 98 percent of the cuts.

There are three observations worth making. One is that there are big long-term trends or swings in tax policy. The huge deficits looming as the “Baby Boom” ages may herald an end to low taxation for everyone.

A second is that President Obama has loudly condemned the plutocrats “who tanked the economy” in the financial crisis. How did Bill Gates or Steve Jobs or Warren Buffett or the idiots who ran American car companies “tank the economy”? They didn’t. In fact, only about 14 percent of the richest Americans work in finance. Yet Gates, Jobs, Buffett and a lot of other ordinary, successful entrepreneurs were hammered by the Obama tax increases.[4] They have also been subject to his frequent dispensation of moral opprobrium.[5]

A third is that the Democrats need to define what they mean by “fair.” As in, “the rich should pay their fair share.” The rich are already carrying a disproportionate share of the fiscal weight while almost half of Americans pay nothing at all for the programs that benefit them. As Woody Guthrie might have said (had he been an entirely different person), “A poor man with a ballot-box can rob you just as easily as can a rich man with a pen.”

[1] “Taxing the rich,” The Week, 4 November 2011, p. 11.

[2] Can you impeach a former President?

[3] If “taxation without representation is tyranny,” then what is representation without taxation?

[4] Perhaps it is worth pointing out that of the “one percent,” about 16 percent are in medicine; about 12 percent are lawyers, and about 50 percent of the members of the House of Representatives and the Senate belong to the “one percent.”

[5] See: “Stuff my president says.”

Inequality 6.

Does economic inequality matter? Citing Thomas Piketty’s book Capital in the Twenty-First Century, Neil Irwin argues that there is a “deepening consensus…that rising inequality of income and wealth is an important trend over the last two or three decades.”[1] Eduardo Porter regards these social ills as “an existential threat to the nation’s future.”[2] NB: Is he correct? However, a “trend” isn’t either a problem or a solution. It is just an observed movement. People assign meaning to trends. The meaning assigned reflects the ambitions, fears, and beliefs of the people doing the assignment.

What has caused the stagnation in most incomes? Since 1973 productivity growth in the American economy has slowed dramatically.[3] That is the principal cause of the stagnation in most incomes. According to the most-recent Economic Report of the President, the failure to maintain the productivity-growth of the pre-1973 period means that the average American family now earns $30,000 a year less than it would have earned. In contrast, the increase in income inequality over the same period accounts for $9,000 a year for the same family.[4]

Regardless of the causes of rising inequality, liberals see a correlation between rising inequality and social problems. The teen-age birth-rate in the United States is about seven times as high as in France. More than one in four children lives with a single parent. More than twenty percent of Americans live in poverty. Seven out of every thousand adults is in prison.[5] A child born to a white, college-educated, married woman has the same chance of survival as does a child born to a similarly-circumstanced woman in Europe. However, children born to non-white, poor, single women have a much greater chance of dying young. Mental illness is more common among poor people than among wealthy people. Between 2009 and 2013, 9 percent of people with incomes below the poverty level reported “serious psychological distress,” while only 1.2 percent of people earning more than $80,000 so reported.[6] NB: Hard to get ahead if you’re mentally ill. On the other hand, 91 percent of people below the poverty level did not report “serious psychological distress.” Why not? Shouldn’t you be all wrought-up over your miserable situation? “People in low-income households don’t live as long [as people in high income households].”[7] By one measure, where there is a great disparity in income, upper income people live almost two days longer for every one-point increase in income disparity. In places with high inequality, you can live eleven days less than in places with low economic inequality. “But what causes the drop in life expectancy is debatable.”

Why this social disaster in the midst of so much other success? The conservative argument offered by Charles Murray and others is that the welfare state itself undermined the character of its beneficiaries. The liberal argument offered by Eduardo Porter is that Americans have been guided by a shared disdain for collective solutions and the privileging of individual responsibility. Therefore, America had relied on continuing prosperity instead of a welfare state. When long-term economic troubles hit, many Americans plunged through the cob-web of a “safety net.”

[1] Neil Irwin, “Things Bernanke Should Blog About,” NYT, 31 March 2015.

[2] Eduardo Porter, “Income Inequality Is Costing The Nation on Social Issues,” NYT, 29 April 2015.

[3] Tyler Cowen, “It’s Not the Inequality; It’s the Immobility,” NYT, 5 April 2015.

[4] This suggests that the policy prescriptions of Bernie Sanders target the smaller source of Americans’ discontent.

[5] That is three times the rate of 1975.

[6] “Noted,” The Week, 12 June 2015, p. 16.

[7] Margot Sanger-Katz, “How Income Inequality Can Be Bad for Your Health,” NYT, 31 March 2015.

Character Test.

Eduardo Porter has argued that Americans have been guided by a shared disdain for collective solutions and a belief individual responsibility. The conservative argument offered by Charles Murray and others is that the welfare state has undermined the character of its beneficiaries. The liberal argument offered by Eduardo Porter and others is that America has relied on continuing prosperity instead of a real welfare state. When long-term economic troubles hit, many Americans plunged through the cob-web of a “safety net.”[1]

On the right, in line with the moral corruption argument made by Murray, Republicans propose to repeal the Affordable Care Act and cut a bevy of other programs for the poor. This will end the culture of dependency that many conservatives blame for creeping social pathologies that came to light after the recent Baltimore riots that followed the arresting-to-death of Freddy Grey. The Republican budget plans seem like a dead-end. For one thing, they target relatively low-cost programs aimed at the poorest Americans. In reality, defense, Medicare/Medicaid, and Social Security are the big drivers of government spending. As Willy Sutton explained when asked why he robbed banks, “That’s where the money is.”

For another thing, these categories of spending are widely popular with the American middle class. Once again, as with opposition to gay marriage and to immigration reform, Republicans are picking the losing side of an argument. Takes Social Security as an example. As the Baby Boom retires, it places a mounting pressure on the system. When current revenue through withholding is inadequate to meet obligations, the System draws on the Social Security trust-fund (built up from revenue surpluses in the past). At the moment, the trust-fund is expected to be exhausted by 2033. After that happens, retiree benefits will be reduced to perhaps 75 percent of expected benefits.[2] Senators Elizabeth Warren and Bernie Sanders favor raising or removing the cap on Social Security withholding to greatly increase revenue for the supplemental retirement income system. However, they favor going beyond stabilizing the finances of the present system to create an expanded national pension system.[3]

This seems likely to emerge as a powerful issue in future elections. In 2005, 26 percent of still-working Americans expected “to rely on Social Security as a major source of income” in retirement. In 2015, 36 percent of still-working Americans “expect to rely on Social Security as a major source of income” in retirement. Among currently retired people, 73 percent are receiving reduced benefits because they retired early.

There are several possible explanations for the growing place of Social Security in the retirement income of Americans. One explanation could be that the Great Recession devastated both the savings and the income of ordinary Americans. Another explanation could be that a decade of aging forced many Baby Boomers to confront their own lack of thrift over the course of a lifetime. Similarly, the huge number of people who took early retirement could be explained by either the moral corruption argument or by the ravages of globalization over the last 25 years.

If conservatives want to sustain the moral corruption argument, they will have to openly apply it to middle class entitlements. Of course, cannibalizing the Affordable Care Act could provide some of the revenues to shore up middle class entitlements. However, this would require the middle class to turn its back on the poor. So, a test of character.

[1] Eduardo Porter, “Income Inequality Is Costing The Nation on Social Issues,” NYT, 29 April 2015.

[2] “Social Security worries mount,” The Week, 22 May 2015, p. 32.

[3] This strikes me as equivalent to the sort of defined-benefit system that American companies found to be unsustainable and abandoned in favor of the defined-contribution systems. Perhaps I’m wrong.

Inequality 5.

The community in which a person grows up exerts a big influence on his/her life-course. D’uh. Only now we have a big social science study to validate this common belief.[1] Growing up in a low-income black area reduces one’s chances of rising into the middle class, even if the person is white.

Some areas are dead-ends for low-income people. The old cotton South, Southern California, and much of the Rust Belt are bad places to be stuck.

Where are the places with the biggest positive impact on the earnings of low-income people? Places with lots of Scandinavians or Mormons: southern Minnesota, northern Iowa, Utah, adjacent parts of Wyoming, and southeastern Idaho. What distinguishes areas favorable to social mobility from places unfavorable to social mobility? The quality of the public schools, the share of two-parent families, the degree of social engagement by the community (functioning civic and religious groups), and the integration of different income groups in a single community.

Of course, the study may actually reveal the character of the people who go, as much as the character of the places to which those people go. Again, d’uh.         Children who moved from a low-income area to a higher-income area were later in life, less likely to become single parents, more likely to go to college, and earned more money. Moreover, the places where poor people cluster are full of poor people. The schools are poor, there is a lot of pathological behavior, and it isn’t very safe. Parents who move from a lower-income place to a better-income place do their children an immense service. Still, they have to pay a cost.

However, the study revealed several disparities. One is between older and younger siblings in the same families. The sooner a kid gets out, the better for their life prospects; the later a kid gets out, the worse for their life prospects. Getting a kid out before age 9 or 10 offers the best hope. Chances decline rapidly after that age. A second disparity is between the sexes. Low-income women who grow up in higher income areas earn about 25 percent more than low-income women who grow up in low-income areas. Low-income men who grow up in a higher-income area earn about 30 percent more than men who grow up in a low-income area. What was not reported was the comparative chances of being employed or unemployed.

The same study found that “commuting time has emerged as the single strongest factor in the odds of escaping poverty.”[2] The longer is the commute, the lower is the chance of improving one’s life. Basically, there aren’t any jobs in the places where poor people live. To get a job, someone has to travel. One of the big problems is that public transportation is not equally distributed across communities. In a lot of middle-class places, everyone has a car so no one cares about public transportation. If someone who is poor wants to live in one of these communities, they need to get a car. Aye, there’s the rub.

Still, what causes higher-income areas to be better than low-income areas? Sure, “they have more money.” Why do they have more money? Because they’ve always had more money, so they have better schools, two-parent families, and kids who go to college? Or because there is a culture that values marriage, family, education, and civic engagement? Which of these factors can be addressed by public policy? Which are matters of “personal responsibility”?

[1] David Leonhardt, Amanda Cox, and Claire Cain Miler, “Change of Address Offers A Pathway Out of Poverty,” NYT, 4 May 2015.

[2] Mikayla Bouchard, “Transportation Emerges As Key to Escaping Poverty,” NYT, 7 May 2015.

Inequality 4.

By and large, in recent years the upper income groups have collected most of the profits from economic growth while everyone else has lived with stagnant incomes. How much effect in monetary terms has that monopolization of growth had? According to one calculation, if the top one-percent still received the same share of income that they received in 1979, then every other family could have received a cheque for $7,105.[1]

However, compare this with another form of inequality. If incomes have stagnated for most people, so has educational attainment.          In 1900, about 11 percent of Americans aged 14 to 17 attended high school. By 1950, 75 percent of that age group attended high school. That was about double the European rate. The G.I. Bill (1944) carried the American lead forward into college education by financing college education for veterans (among other things). Then something started to go wrong in the 1970s. Male graduation rates for four-year colleges began to decline. Essentially, women have taken up the slack in educational attainment. Unfortunately, this coincided with the decline in heavy industry that paid good wages for people without a college education.

The educational differential both is and isn’t generational. Of Americans born between 1950 and 1959, 42 percent have a college degree. Of Americans born between 1980 and 1989, 44 percent have a college degree. However, only 30 percent of Americans reach a higher level of education than did their parents. Among 25-34 year-olds, 20 percent of men and 27 percent of women have made the big jump from parents who didn’t finish high school to having a college degree.

The differential is linked to social class. From the mid-1970s and the mid-1990s, college graduation rates for those in the top 25 percent of income groups rose from 36 percent to 54 percent; rates for those in the bottom 25 percent rose only from 5 percent to 9 percent. Between the early 1980s and the early 2000s, college attendance rates for people from the top 25 percent of income groups rose to be 15 to 25 percent higher than for those in the bottom 25 percent.

Why do these figures matter? They matter because, on average, Americans with a college degree are paid 74 percent more than those with only a high school degree. Between 1979 and 2012, the difference between the incomes of families headed by college graduates and families headed by high-school graduates grew by $30,000.

Education isn’t working as a vehicle for social mobility. It is starting to do the opposite.

The causes of this stagnation are complex. For one thing, middle class students go to much better schools than do lower class students. The middle class students come out less unprepared for college than do lower class students, usually markedly less unprepared. For another thing, college costs more in the United States than it does most places, and cuts in already inadequate support for public colleges have thrown even more of a burden on families.

If you think that a BA or more makes for a highly skilled work force, then expanding the percentage of Americans who are college graduates is vital for improving the quality of the American work force. If you think that international competitiveness in a globalized economy is vital for American prosperity, then improving the quality of the American labor force is essential.

Which of these two forms of inequality is worse for the country? This isn’t an attempt to divert attention from one form of inequality on behalf of the “one-percent.” It is an effort to get people to pay attention to complex fundamental problems.

[1] Eduardo Porter, “”Equation Is Simple: Education = Income,” NYT, 11 September 2014.

American Public Opinion.

So, regardless of what the politicians say, what do Americans think about some issues?

Back in September 2014, in the wake of the Islamic State’s over-running of much of Iraq, 53 percent of Americans approved of President Obama’s strategy for dealing with ISIS.[1] However, 64 percent of Republicans and 60 percent of Democrats approved. How did those higher numbers end up with an average of 53 percent? This suggests that there is a big group of Independents who don’t like the President’s policy.

In the November 2012 elections, 68 percent of Hispanic voters supported Democrats and 33 percent supported Republicans. In the November 2014 elections, 62 percent of Hispanic voters supported Democrats and 36 percent supported Republicans.

What do Hispanic voters care about? Not immigration reform. Only 16 percent of those polled in November 2014 ranked that as their primary concern. Health care came first for 24 percent. The economy in general came first for 49 percent.[2]

Two thirds of Americans are satisfied with the current US health-care system. [That’s a blurry response. Are they satisfied with the medical care they receive or are they satisfied with how the Affordable Care Act operates or both?] A whopping 74 percent of Democrats are satisfied, but even 60 percent of Republicans are satisfied.

The “war on guns” appears to be headed in the same direction as the “war on drugs.”[3] In 2000 only 29 percent of Americans favored preserving gun-rights over gun-control. By 2013, 45 percent favored gun-rights over gun-control; in 2015, 52 percent favored gun-rights over gun-control. This included 54 percent of African-Americans, up from 29 percent in 2012.

In the immediate aftermath of the “Charlie Hebdo” massacre in Paris, 63 percent of Americans believed that it was more important to preserve free speech than to not offend religious people. Only 19 percent thought it important to avoid offending other people.[4]

In early 2015, 49 percent of Americans identified as “pro-choice,” while 47 percent identified as “pro-life.” However, 84 percent favor liming abortion to the first three months of a pregnancy. This includes 69 percent of those who identify as “pro-choice.”[5]

This is a puzzler. Does it mean that a lot of pro-life people wouldn’t have an abortion themselves, but don’t really want to proscribe abortions for other women who find themselves in a jam? Does it mean that lots of pro-choice people think that abortion is a necessary evil, rather than a categorical right to be exercised at any time?

As of early 2015, 60 percent of Americans thought that middle-class people pay too much in taxes; 68 percent believe that the rich pay too little in taxes.[6]

A huge majority of Republicans—69 percent–agree with Rudy Giuliani that President Obama doesn’t love America. A huge majority of Democrats—85 percent—believe that does too love America.

One of several bizarre things here (aside from so many Republicans agreeing with that idiot Giuliani) is that apparently 15 percent of Democrats either believe that the President doesn’t love America or they’re not sure.

[1] “Poll Watch,” The Week,” 26 September 2014, p. 17.

[2] “Poll Watch,” The Week, 21 November 2014, p. 19.

[3] Timothy Williams, “Poll Finds That More Americans Back Gun Rights Than Stronger Controls,” NYT, 12 December 2014.

[4] “Poll Watch,” The Week 26 January 2015, p. 17.

[5] “Poll Watch,” The Week, 6 February 2015, p. 17.

[6] “Poll Watch,” The Week, 6 March 2015, p. 17.