Saturday, November 15, 2014
Welcome To Age Of Failure
Adam Davidson likes to come up with "big ideas". He argues that we are just moving into the age of computers and an increase in the rate of innovation. An increase in the rate of innovation provides the seeds for an increase in the rate of failure. He contrasts the era into which we are moving with the era of the corporation which provided more stability. The goal of the corporation was to get as much revenue and profit out of existing products which would be gradually updated over time. The stock market also spread the risk of failure among large numbers of investors. Secure corporations were also able to provide secure jobs. According to Davidson the era of the secure corporation is giving way to an era of innovation and failure. Everyone will have to be more innovative and society will have to find ways to reduce the risk of failure.
US Tax Policy And Inequality 1979-2011
The impartial Congressional Budget Office released a report on income inequality and tax policy over a 33 year period. Tim Taylor does an excellent job of describing the results. He includes a few graphs, which can be enlarged to view more clearly, that illustrate the changes over 33 years.
His first point provides a dramatic illustration of the importance of understanding the difference between using an average or the median to describe the central tendency in the data. The average income in the US is $80,600. That looks great compared to any other nation. On the other hand, the median income is only $49, 800. That is because the very high incomes at the top of the distribution have a powerful effect on the average. For example, if Bill Gates walked into a room, the average income in that room would skyrocket. The median is a much better measure of the central tendency when the data are dramatically skewed in any direction. The most frequently used measure used to compare the well being of nations is per capita income. That is an average, and it is much better to use median income per capita to get a more accurate measure of central tendency. Moreover, the difference between the average and the median increases as the data are skewed in any direction. It is a good way to determine distributional changes over time.
We frequently break distributions down into five quintiles, each of which contains 20% of the distribution. The bottom four quintiles realized a gain of 16% in income over the 33 year period. The top quintile had 56% increase in its income. Taylor is not terribly concerned with that difference because some of it can be explained as a return on skill. When we look only a the top 1%, however, it is hard to explain the pattern as a return on skill. The income pattern for the top 1% rises and falls with stock prices. Obviously, it is not explained by rises and falls in the skill of the top 1%. Conservative economists, like Greg Mankiw at Harvard, claim that the income gains made by the top 1% are the result of a rising premium that the market places on skill. Therefore, it would be a mistake to make an effort to alter the natural force of the labor market. Mankiw is a very smart economist but he would have a very difficult time explaining the pattern that the CBO data describe so well. The top 1% receives much of its income from stock ownership and that market is much more volatile than the premium that the labor market places on skill.
Tax policy is used by most nations to moderate the unequal distribution of market income. The US has a moderately progressive federal tax system much like that of other nations. Over 33 years changes in tax policy have reduced the overall federal tax rate for the top 1% from 33% to 29%. That group has seen its income rise much more than other groups and its average tax rate has been reduced by 4%. Each of the other income groups, which have progressively higher tax rates has seen their average tax rate decline by only 1%. It is pretty clear that the top 1% have had more influence on the federal tax rate than other income groups. Moreover, cutting taxes for the top 1% has not had much of an effect on the incomes of the remaining income groups. In fact, cutting the tax rate for the top may have been a factor in causing the income share of the top 1% to accelerate much faster than all of the groups below the top 1%. Much of its growth in income has come from gains in capital income which is taxed at lower levels than wage income. The data illustrate that changes in market income are driving the growth in income inequality. Tax policy has had only a modest effect on reducing the distribution of after tax income. Moreover, federal tax income has declined for all income groups over the 33 year period. That has had a powerful effect on the ability of government to provide public services without borrowing money. Politicians love to cut taxes and its easier to maintain federal spending by selling US treasuries than by collecting the needed income via taxes.
There are a variety of government programs which redistribute tax income to lower income groups. All income groups receive some income from government programs. For example, Medicare provides healthcare benefits to all senior citizens independent of their income. On of the odd results that we observe is that US citizens in the bottom 20% receive the lowest share of federal income redistribution. Moreover, total amount of income redistributed by federal programs has been declining. That is why those with low incomes in most other rich countries are much better off that low income citizens in the US. They redistribute more income to their citizens than the richest country in the world.
His first point provides a dramatic illustration of the importance of understanding the difference between using an average or the median to describe the central tendency in the data. The average income in the US is $80,600. That looks great compared to any other nation. On the other hand, the median income is only $49, 800. That is because the very high incomes at the top of the distribution have a powerful effect on the average. For example, if Bill Gates walked into a room, the average income in that room would skyrocket. The median is a much better measure of the central tendency when the data are dramatically skewed in any direction. The most frequently used measure used to compare the well being of nations is per capita income. That is an average, and it is much better to use median income per capita to get a more accurate measure of central tendency. Moreover, the difference between the average and the median increases as the data are skewed in any direction. It is a good way to determine distributional changes over time.
We frequently break distributions down into five quintiles, each of which contains 20% of the distribution. The bottom four quintiles realized a gain of 16% in income over the 33 year period. The top quintile had 56% increase in its income. Taylor is not terribly concerned with that difference because some of it can be explained as a return on skill. When we look only a the top 1%, however, it is hard to explain the pattern as a return on skill. The income pattern for the top 1% rises and falls with stock prices. Obviously, it is not explained by rises and falls in the skill of the top 1%. Conservative economists, like Greg Mankiw at Harvard, claim that the income gains made by the top 1% are the result of a rising premium that the market places on skill. Therefore, it would be a mistake to make an effort to alter the natural force of the labor market. Mankiw is a very smart economist but he would have a very difficult time explaining the pattern that the CBO data describe so well. The top 1% receives much of its income from stock ownership and that market is much more volatile than the premium that the labor market places on skill.
Tax policy is used by most nations to moderate the unequal distribution of market income. The US has a moderately progressive federal tax system much like that of other nations. Over 33 years changes in tax policy have reduced the overall federal tax rate for the top 1% from 33% to 29%. That group has seen its income rise much more than other groups and its average tax rate has been reduced by 4%. Each of the other income groups, which have progressively higher tax rates has seen their average tax rate decline by only 1%. It is pretty clear that the top 1% have had more influence on the federal tax rate than other income groups. Moreover, cutting taxes for the top 1% has not had much of an effect on the incomes of the remaining income groups. In fact, cutting the tax rate for the top may have been a factor in causing the income share of the top 1% to accelerate much faster than all of the groups below the top 1%. Much of its growth in income has come from gains in capital income which is taxed at lower levels than wage income. The data illustrate that changes in market income are driving the growth in income inequality. Tax policy has had only a modest effect on reducing the distribution of after tax income. Moreover, federal tax income has declined for all income groups over the 33 year period. That has had a powerful effect on the ability of government to provide public services without borrowing money. Politicians love to cut taxes and its easier to maintain federal spending by selling US treasuries than by collecting the needed income via taxes.
There are a variety of government programs which redistribute tax income to lower income groups. All income groups receive some income from government programs. For example, Medicare provides healthcare benefits to all senior citizens independent of their income. On of the odd results that we observe is that US citizens in the bottom 20% receive the lowest share of federal income redistribution. Moreover, total amount of income redistributed by federal programs has been declining. That is why those with low incomes in most other rich countries are much better off that low income citizens in the US. They redistribute more income to their citizens than the richest country in the world.
Friday, November 14, 2014
Paul Krugman Explains Why The Climate Agreement With China Is Really Important
The carbon emission agreement between the US and China is not perfect but it removes an objection that is used by Republicans to defend their friends in the energy industry. Krugman recites the line of arguments used by the political party, that might be better known as the "Screw the Planet Party". It is clearly not a conservative party because it does not want to preserve the planet for future generations. It is more concerned about winning elections and preserving the campaign contributions that it receives from businesses that place the value of the energy reserves on their balance sheets above anything else. The 2016 elections will be a battle over the future of our planet.
We are more than familiar with the arguments that have put into the mouths of Republican leaders by the reactionary industries that support them. Krugman restates the obvious objections to their claims. However, the agreement with China shows that its leaders have a real concern about the damages that are being done to their environment today. The Republicans can no longer claim that a global policy on carbon emissions is not possible because China will not comply with any agreement. Krugman also shows how tariffs can be use enforce global agreements.
We are more than familiar with the arguments that have put into the mouths of Republican leaders by the reactionary industries that support them. Krugman restates the obvious objections to their claims. However, the agreement with China shows that its leaders have a real concern about the damages that are being done to their environment today. The Republicans can no longer claim that a global policy on carbon emissions is not possible because China will not comply with any agreement. Krugman also shows how tariffs can be use enforce global agreements.
Wednesday, November 12, 2014
US And China Reach Agreement On Carbon Emission Targets
President Obama left his meeting with Chinese leaders with an agreement that both nations will put plans in place to reduce carbon emissions. China is the largest emitter of carbon and the US is the second largest carbon emitter. This article describes the agreement as well as reactions to the agreement. China is motivated to reduce its reliance on coal because it is causing serious air pollution problems today. It will not be easy for China to shift its rapidly growing economy to cleaner sources of energy. The US has a different problem. The Republican Congress will fight every effort that the administration makes to alter its energy sources.
The Demise Of The White Democratic Voter
72% of white voters without a college degree voted for the Republican Party in the mid-term elections. Those voters used to vote for democrats. This article describes the GOP plan to increase its share of votes from this group. The Republican senate candidate won that election by winning more than 80% of the votes from white evangelicals. That was enough to overcome the wide margin that the democratic incumbent had among the rest of the electorate. In Maryland it was a different story. This time it was tax policy. Maryland, which is traditionally a blue state, elected a Republican Governor. He told voters that he would not raise their taxes in order to increase spending on social programs.
Voter turnout for the mid-term elections was at its lowest level since 1942. Typically low turnouts provide an advantage to the political party that has the most motivated voters. The most highly motivated voters in mid-term elections have been voting Republican in the most recent mid-term elections.
Voter turnout for the mid-term elections was at its lowest level since 1942. Typically low turnouts provide an advantage to the political party that has the most motivated voters. The most highly motivated voters in mid-term elections have been voting Republican in the most recent mid-term elections.
Tuesday, November 11, 2014
The GOP Controll Congress And Its Time To Pay Back Their Energy Industry Funding Machine
The GOP controlled Congress is quickly moving to reward its energy industry sponsors. They have two immediate plans to do so. The House, which has control over the budget, will move to reduce funding for the Environmental Protection Agency which is using its regulatory authority to reduce carbon emissions. The head of the House Committee that overseas energy policy is a climate change skeptic who has published a book that is popular in the GOP base, which includes many who also do not believe in the theory of evolution. The GOP will also push forward proposals to approve the Keystone Pipeline which will move dirty oil from Canada and northern states to New Orleans.
The Great Wage Slowdown For Which Neither Party Has A Plan
The average middle class worker earns less today than when Obama took office. That is one of the reasons why the Democratic Party was clobbered in the mid-term elections. Neither party has offered a plan to rectify the situation, but that did not matter to Republicans. They ran against a president that they have successfully discredited. Nothing inspires their base more than hatred for the other team. The Democratic Party has not inspired its traditional base, and it doesn't have George Bush to run against. Both party's talk about reforming education, which seldom works, and other solutions which may be useful in the long run, but the public is not interested in the long term. Some states and localities increased the minimum wage enough to make a difference, but democratic candidates did not capitalize on republican opposition to an increase in the minimum wage.
The Republican Party has traditionally positioned itself as the tax cutting party. In fact, they have made major changes to the tax code. Their tax cutting strategy is very simple. The made major cuts in taxes that benefit business and the super rich, and they threw a few bones to the middle class in the process. President Obama made some progress in reducing the tax breaks for the super rich, while retaining the middle class tax cuts, but the public still believes that the tax code favors the super rich. Tax cuts for the middle class, partially paid for by higher taxes on the super rich, offer a short term solution for middle class households whose wages have not grown. That would be a winning political strategy for Democrats but it would make it more difficult for the party to raise money for its political campaigns. The super rich donate to both political parties. There are a few enlightened billionaires, who believe that they should pay higher taxes, but they are few in number.
The Republican Party has traditionally positioned itself as the tax cutting party. In fact, they have made major changes to the tax code. Their tax cutting strategy is very simple. The made major cuts in taxes that benefit business and the super rich, and they threw a few bones to the middle class in the process. President Obama made some progress in reducing the tax breaks for the super rich, while retaining the middle class tax cuts, but the public still believes that the tax code favors the super rich. Tax cuts for the middle class, partially paid for by higher taxes on the super rich, offer a short term solution for middle class households whose wages have not grown. That would be a winning political strategy for Democrats but it would make it more difficult for the party to raise money for its political campaigns. The super rich donate to both political parties. There are a few enlightened billionaires, who believe that they should pay higher taxes, but they are few in number.
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