Other Than That…

Over at The New York Times Eduardo Porter makes an interesting point about the debate on income inequality, the size of government, etc.:

Over the last four decades the debate in Washington about poverty and inequality has been bogged down in a somewhat pointless, often surreal debate about the size of government and the amount spent on behalf of the poor.

Over that same period, the earnings of workers in the bottom half of the income pile have progressed little. American society has buckled under the strain.

The actual size of government? Measured by the taxes we pay, it was about 25 percent of our gross national product in 1970. It is still about 25 percent of our G.D.P. today. And the share of our wealth spent on the poor, apart from money devoted to the rising cost of health care, has not changed very much, either.

Other than that, Mrs. Lincoln, how did you like the play?

If we’re going to help the poor, that’s what we should do: help the poor. Helping the poor by paying physicians, hospitals, social workers, etc. more acts primarily to subsidize the incomes of physicians, people who work in hospitals (or owners of hospitals), social workers, etc. How do I know that? Outcomes. We’re spending enormously more in real terms for healthcare than we did 45 years ago.

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What’s Fair Is Fair

Here’s an interesting finding. According to Gallup, three-fifths of Americans think that the distribution of income and wealth in the United States is unfair:

PRINCETON, N.J. — Despite the growing focus on inequality in recent years, the 63% of Americans who say that money and wealth should be more evenly distributed among a larger percentage of the people is almost the same as the 60% who said this in 1984.

Americans’ agreement that money and wealth need to be more evenly distributed reached a high point of 68% in April 2008, in the last year of the George W. Bush administration, and just before the full effects of the Great Recession began to take hold. Americans became slightly less likely to agree with the idea later that year and in surveys conducted in 2009, 2011 and 2013. This year’s increase to 63% is close to the average of 62% agreement across the 13 times Gallup has asked the question since 1984. The latest data are from Gallup’s April 9-12 Economy and Personal Finance survey.

Americans’ views on how money and wealth should be distributed in the country are strongly correlated with their partisanship and ideology. Agreement ranges from 86% among Democrats and 85% among liberals, down to 34% and 42% among Republicans and conservatives, respectively.

Two things occur to me on reading that. As usual, I’m more concerned about policy preferences than outcome preferences. I wonder how most Americans think that things might become more equal?

If you want to get the maximum effect, you’ll favor transfers from the richest to the poorest. It doesn’t do much about inequality if you transfer from the top 1% of income earners to others in the top 1% of income earners but, sadly, that’s been our policy for much of the last half century.

I think that’s easier said than done. Effective tax rates have been extremely persistent over a very long period of time so I’m skeptical it can be done via the tax systems.

The second thing that occurs to me is that I wonder if most Americans think that the large income disparity between themselves and, say, the Chinese people or Indians is unfair? The longstanding and widespread popular opposition to increasing foreign aid suggests we don’t a problem with it. Which makes me wonder about ideas of fairness.

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McDonalds’s Charlie Brown Football

I’m surprised more people haven’t made this connection. The other day McDonalds’s CEO announced that the company would be franchising 3,500 of its own-operated stores. That didn’t get a lot of attention outside the business publications. Here’s the sequence of events:

  1. To much fanfare, McDonalds announces it will be increasing the wages of minimum wage employees in the stores that it owns itself.
  2. That won’t apply to the franchised stores.
  3. The beancounters at the company run the numbers and determine that the increased wages will render many of the stores unprofitable.
  4. The company announces it will sell of more than half its own-operated stores.

It’s possible that the company already planned this move before their pay raise announcement. That would have been pretty cynical, wouldn’t it.

I feel sorry for McDonalds’s poor employees. They get a pay raise only to have it yanked away by the new franchisees.

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Why Chicago Can’t Tax Its Way to Solvency

You may note that this post from the Illinois Policy Institute echoes what I’ve been saying here for some times:

“To get a sense of the magnitude of the property tax increases necessary to move to full funding of annual pension payments, Nuveen Asset Management analyzed the 2013 property tax levies, pension payments and Annual Pension Costs (APC) for Chicago and its overlapping taxing districts as reported in their respective audited financial statements. We analyzed the tax bill of a theoretical $400,000 home in Chicago under current tax requirements and a scenario under which the city and its overlapping taxing districts all make full annual pension payments. The analysis does not include the impact of any specialized property tax exemptions like the homeowner’s exemption or the senior freeze exemption. All tax figures are from each entity’s 2013 fiscal year – the most recent fiscal year in common for all issuers.

“Based on our review of each government’s fiscal 2013 audited financial statements, the owner of a $400,000 home would have paid approximately $6,873 in property taxes. As was the case for Chicago, most of these government entities didn’t fully fund their pension payments, therefore maintaining property taxes at levels below where they otherwise should be. Chicago would need to increase its portion of the property tax levy 155.6% to make a full pension contribution and Cook County would need to increase its portion of the levy by 60.8%.

“Altogether, the owner of a $400,000 home in Chicago would need to pay $3,355 in additional property taxes to support full annual pension contributions – increasing the tax bill to $10,228 for a single year jump of nearly 49%. While home rule entities in Illinois, including the City of Chicago, are not subject to state imposed property tax caps, some overlapping tax districts such as Chicago Public Schools are limited to an increase of the lesser of 5% or the change in inflation.”

There are any number of things to note about his. First, such a strategy would be incredibly regressive. Second, that analysis is static and arithmetic. The real problem is even worse. It ignores the run-on effects. Some property owners would simply default rather than pay the tax. Rents would rise, in some cases throwing people into the streets. To increase tax rates is not necessarily to realize more revenue.

And such a strategy, as mentioned in the cited portions, is beyond the CPS’s or the city’s powers.

It’s hard for me to see a solution other than bankruptcy for Chicago’s public pension problems. Even a reprieve from the state will only postpone the crisis.

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Naming a Thing

Jonathan Tobin asks whether the Clinton Foundation is really a charity? I’ll save you the trouble. No, it isn’t. It’s a personal holding company, something it has been held should be taxed at personal income rates for most of the last century.

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Really?

Does Robert Samuelson really mean to say that the United States should sacrifice the economic interests of its citizens to the security wishes of Japan and South Korea? That’s certainly what it sounds like to me:

We seek to reassure nations that we’re still a Pacific power and that our proposal represents a useful framework to govern the region’s trade. A collapse would leave a vacuum that China would most likely fill. Through its own trade agreements, China might fashion a system that gives its exports preferential access to foreign markets, while securing guaranteed supplies of raw materials (oil, grains, minerals). That’s not in our interests.

The hard truth is that given the depth and breadth of Japan’s, South Korea’s, and Taiwan’s business arrangements with China no trade agreement with any of those countries that does not also bind China can possibly be effective. Such trade agreements won’t manage China’s rise so much as facilitate it.

The biggest thing that’s wrong with the Trans-Pacific Partnership agreement is that it’s being conducted behind closed doors. Mr. Samuelson cannot possibly know whether it will include meaningful reductions in Japan’s agricultural tariffs and subsidies or protections for U. S. intellectual property. He just hopes it will.

Meanwhile, intellectual property protection is only really important for those who own patents or copyrights rather than to the American people more generally. Why not include something really important to our trade imbalance which means to all of us: the ridiculous exchange rates maintained by most of the countries in the negotiations in flagrant disregard of IMF standards?

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Defining Your Terms

As if to give an example of the point I made about a policy “not working” Fred Hiatt chimes in to say that “broken window policing” does not work in Washington, DC in the 21st century:

The broken-windows theory, introduced by social scientists James Q. Wilson and George L. Kelling, was enthusiastically embraced by Mayor Rudy Giuliani and his police commissioner, William Bratton, when they came to office in New York City in 1983. The idea was that minor violations could bring down a neighborhood and so encourage much more serious crime, like the murders and crack cocaine use that were rampant then. Bratton, who is back in New York today as police chief, went after graffiti artists, fare-gate jumpers, public drinkers, squeegee panhandlers and other misdemeanants — and the serious crime rate in New York City went down, too.

It’s hard to remember today that this apparent success was seen as a boon not only to the well-heeled of Manhattan but to New York’s poor residents, who were the primary victims both of broken-window squalor and of serious crime. There was less attention paid, at least at first, to the multitudes of poor men getting caught up in the criminal justice system for relatively minor offenses. Instead, an obsessively statistical approach celebrated increasing numbers of arrests as proof of success.

Lanier, by contrast, is proud that the number of arrests in D.C. has declined — from 53,000 in 2007 to 42,000 last year — while crime rates also have gone down. Whatever the connection between zero tolerance and declining crime rates in the 1980s and 1990s — and scholars argue the question — Lanier says it certainly makes no sense for Washington today.

I don’t know whether “broken window policing” worked in New York in the 1980s. I don’t know whether it has been tried in Washington, DC. I don’t know whether it would “work” in Washington, DC and there’s no way for me to determine whether it would without providing the parameters for what working would mean. Mr. Hiatt implies but does not say that its objective is to optimize the number of arrests and crime rates. I believe that the objective in New York was somewhat different: to reduce the number of crimes full stop. To arrive at an agreement on whether a strategy is working you’ve got to define its objectives. So, define your terms.

There probably is no single right way for cities to protect their citizens’ persons and property. The problems, standards, and requirements undoubtedly vary from jurisdiction to jurisdiction. They could always use the strategy for reducing crime that Chicago did: just stop reporting crimes.

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Ways and Means

Nicholas Kristof cites, apparently with approval, the following strategies to reduce income inequality:

  • Government should be more concerned with monopolies and competition policy.
  • Trade unions should be bolstered to represent workers’ interests.
  • Government should provide public-sector jobs at minimum wage to those who want them, in areas such as meals-on-wheels, elderly care, child care and so on.
  • In addition to a minimum wage, there should be a framework to restrain pay at the highest levels. Atkinson cites companies that have voluntarily decreed that executive pay should be capped at 65 or 75 times the average pay in the firm.
  • Personal income taxes should be made more progressive, with a maximum rate of 65 percent.
  • Every child should get a “child benefit” payment, to help keep kids out of poverty.

Just for the record I support his first proposal, think the second is fighting the last war (which has already been lost), cautiously support the third, agree with the fourth but think it’s beyond the power of the federal government to effect without disastrous consequences, and have grave reservations about the sixth. Have we learned nothing from our experience with AFDC? Watch the movie Precious some time for a primer.

It’s the fifth I’m curious about. I have no objection to it in principle but am skeptical that it will accomplish anything. Consider the history of the effective rate of taxation. I’ll save you the trouble of clicking over. It’s been tremendously stable over a very great period of time, resistant to changes in marginal tax rates. The only exception has been during a period of national emergency (World War II).

What measures does Mr. Kristof think should be implemented to increase the effective rate of taxation of the highest income earners?

#3 could be quite expensive. Unless you think that the federal government can extend credit to itself indefinitely without a collapse in the dollar, that means that additional revenue will be needed. Additional revenue means more than increasing the marginal rate of taxation. It means increasing the effective rate.

What concerns me about the plan is that even if all of the above were implemented it still wouldn’t do much about income inequality. To do that you’ve got to train your guns on the top 3% of income earners rather than just the top .1%, curtail immigration, and stop currency manipulators.

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Dreaming

There must a word for it. Every once in a while I run across an argument that if we implement some extreme form of some program or other that all sorts of benefits would flow from it. That’s frequently the argument that anarcho-capitalists make. If we just get rid of all laws and government other than what’s necessary to enforce contracts, think how great it would be!

Most recently I’ve heard the same sort of claims made about drug legalization. We need to end the “War on Drugs” (by which they mean the legalization of all Schedule 1 drugs). Think of all the resources that won’t be squandered on police and prisons and all of the people who won’t be encarcerated!

The problem with all of these utopian plans is that only when the most extreme version is implemented will the benefits accrue. Take the case of ending the “War on Drugs”. There is no prospect whatever that all Schedule 1 drugs will be legalized and with anything less than that there will still be a war on drugs. Drug dealers will continue to be sentenced to prison terms and police will still be needed to enforce the laws.

As a matter of social policy I think we should legalize the possession and personal use of marijuana to bring the law into line with what’s actually happening in the country. Resign ourselves to reality. However, it should be recognized that even in states where marijuana has been legalized it continues to be illegal to give or sell it to minors (widely considered the bulk of the market).

Ironically, that would just be bringing the laws on marijuana into line with the laws on alcohol during Prohibition. Personal use and possession of alcohol was never illegal and individuals were allowed to make beer and wine for their and their family’s use.

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The Problem

I shop and run errands on Saturdays. On a typical Saturday I’ll hit the bank, grocery store, the hardware store, Costco, the drugstore, and the vet’s. While I’m doing so I typically listen to NPR. If it’s after 1:00pm I listen to oldtime radio, broadcast every Saturday afternoon on one of our public radio stations.

Yesterday on my appointed rounds on This American Life I heard the extremely bizarre story of how the late North Korean dictator Kim Jong-Il had South Korea’s most famous actress and her equally famous director ex-husband kidnapped. Think Elizabeth Taylor in her 50s and, say, Steven Spielberg to get some idea of the importance of the figures we’re talking about.

You can listen to the whole story at the link. I wish I had a transcript but, unfortunately, none is available yet.

The aspect of the story that struck me most strongly was an audio tape of remarks by Kim Jong-Il that the couple brought back with them when they at long last escaped their captors. In the course of his remarks in identifying the reasons that North Korean films were so lousy he gave as succinct a critique of socialism as heard. Essentially what he said was if his filmmakers make a good film, they get their rations. If they make a bad film, they get the same rations.

The problem is that true socialism runs afoul of human nature.

Here in the United States very few people want true socialism. They don’t trust government enough and for good reason. We don’t have the kind of consensus here that some European countries, particularly the Scandinavian countries, do. Government here is viewed more as a tool for personal gain rather than as one for public gain. And socialism for private gain is no better than oligarchy or corporatism for private gain.

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