Tag Archives: economics

North Korea: An Ad-Free Utopia?

This post is an updated version of one originally published in 2010.

Skipping through a set of images of North Korea by photographers David Guttenfelder and Vincent Yu, I was reminded that the city is almost entirely devoid of advertising.  There is political propaganda everywhere, of course, but there is an overwhelming absence of the marketing for products characteristic of capitalist societies.  All of the print and electronic media is under state control, and the state administers and controls the economy as well.  Accordingly… there is almost no advertising.  The images in the slide show give us a peak into this world without ads:

Images from a 2010 LIFE slide show after the jump:

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Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

Taxes & the Wealthy: Effects of Raising Top Tax Rates

Cross-posted at Reports from the Economic Front.

There are those that argue that lowering the top marginal tax rates on “ordinary” income (from wages or salary) and capital gains will stimulate economic growth.  Thomas L. Hungerford, in a Congressional Research Report, tests and rejects this claim.

He finds no statistical relationship between changes in either of these top tax rates and private savings, investment, productivity, or real per capita GDP growth.  However, he does find a strong statistical relationship between changes in these tax rates and income inequality.  More specifically, raising top tax rates can be expected to promote greater income equality without causing harm to the economy.

Tax Trends

There are two main tax concepts: the marginal tax rate, which is the tax paid on the last dollar of income received, and the average tax rate, which is the proportion of all income that is paid in taxes.  How much a person pays on the last dollar received depends on whether it is classified as ordinary income or capital gains.

Most importantly, as the chart below shows, the very top tax payers have enjoyed a steady decline in their average tax rate.

The next chart shows trends in top marginal tax rates on ordinary income and capital gains.  The top marginal tax rate on ordinary income has clearly been on the decline: from 91% in the 1950s, 70% in the 1960s and 1970s, to a low of 28% in 1986.  It now stands at 35%.  The top marginal capital gains tax rate has not changed as much.  It was 25% in the 1950s and 1960s, 35% in the 1970s, and is now 15%.

The Tests

Hungerford used econometric methods to test whether changes in top marginal tax rates affect private savings, investment, productivity, and/or per capita GDP growth.  Simply plotting the movement of top tax rates and each of these variables suggests that a decline in top tax rates is associated with a positive movement in each of these economic variables.

However, as Hungerford correctly states, correlation is not the same as causation.  Using regression analysis, he found that the relationships were only coincidental or spurious; there was no statistically significant connection between changes in the top tax rates and movements in any of the variables.

Hungerford also tested to see if changes in top marginal tax rates had any effect on the distribution of income.  The first chart below shows the scatter plot of top tax rates and the share of income going to the top 0.1% for the years 1945-2010.  The second shows the same with the top 0.01% of income earners.

As we can see the fitted lines suggest a very strong relationship between the variables.  As before, Hungerford used regression analysis to determine whether the relationships were statistically significant.  This time his answer was yes in both cases; changes in top marginal tax rates do affect income concentration.  In other words, lowering the top rates increases income inequality, raising them reduces it.

It is time for us to start agitating for raising the top tax rates.

Economic Lessons from the NFL Referee Strike

The NFL referees have been on strike.  In their place the league has hired replacements in order to keep the season underway.  Word on the street is that the replacements are doing a distinctly terrible job. Writes Ed at Gin and Tacos:

Since professional and amateur football have different rules — in some cases very different — the results have been predictably disastrous. From their failure to do basic things like spot the ball and operate the game clock to major rules of which they appear to be totally ignorant, they have proven thus far that there is nothing they can’t botch.

Others, too, are finding humor in their ineptitude:

Ed wonders if NFL fans are internalizing the economic lesson in this debacle:

In a surplus labor market you can always find someone willing to do a job for less, but they’re probably not going to do it well. Even the type of person who blames the work stoppage on the union… can’t deny that the end result is the replacement of trained, experienced professionals with a clown car load of knuckleheads who act like they’ve never seen a football before.

He concludes, suggestively: “maybe all human capital is not interchangeable …and maybe there are some noticeable downsides to a market in which whoever will work for the least gets the job.”

The NFL, being entertainment and all, isn’t the best example, but when we apply the same logic to occupations like school teachers and air traffic controllers, we should sit up and notice.  Maybe at this moment, when something so beloved is at stake, it’ll raise America’s consciousness just a little bit.  Ed, for what it’s worth, isn’t optimistic.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

Mitt Romney and the 47% Meme

Cross-posted at Caroline Heldman’s Blog.

On Monday, Mother Jones released a video recorded in May of presidential candidate Mitt Romney speaking at a $50,000-a-plate fundraiser in the Boca Raton home of “private equity party boy” and “sexy party” host, Marc Leder. A hidden camera caught controversial remarks about IsraelIran, and a joke about being more electable if his parents had been born in Mexico, but the topic of this post is Romney’s use of the 47% Meme.

The 47% Meme is the idea that half of Americans take from rather than contribute to tax coffers. It sometimes surfaces in the form of the “takers vs. makers” frame. I have encountered this “argument” for years on Fox News, so it is surprising to see it gaining national attention now. Romney did a superb job articulating the 47% Meme in response to a question of how he might win in November:

There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them.

Many myths start with a kernel of truth. The 47% Meme is loosely based on the statistic that 47% of Americans pay no income tax (down to 46% in 2011). This meme is wildly dishonest since people pay a host of other federal, state, and local taxes. It’s about as honest as saying a person doesn’t eat vegetables because she only eats carrots, celery, bell peppers, cucumbers, and cabbage, but not broccoli.

So who is paying taxes, and what taxes are they paying?

 

Federal Income Tax

The Tax Policy Center finds that two main groups comprise the 46% who do not pay federal income tax: (1) The poor whose subsistence-level income is not taxable, and (2) those who receive tax expenditures. This chart shows that the lion’s share of tax expenditures goes to senior citizens, children, and the working poor, with the notable exception of 7,000 millionaires who paid no income tax in 2011.

 

Other Federal Taxes

But enough about income tax since this narrow focus only serves to further the misleading 47% Meme. The chart below shows a more accurate picture of who pays federal taxes. If we don’t count retirees, only 8% of Americans pay no income or payroll taxes.

Americans also pay federal excise tax on gas, liquor, cigarettes, airline tickets, and a long list of other products, so virtually every American pays federal taxes in some form. And contrary to the 47% Meme, poor and middle-class Americans actually pay a greater percentage of their income in federal payroll and excise taxes than wealthier Americans.

State and Local Taxes

When it comes to state and local taxes, the Institute on Taxation and Economic Policy finds that the poor pay more in state and local taxes in every state except Vermont. As the chart below indicates, state and local taxes are regressive, meaning that those who can least afford to pay, pay more.

Romney has apologized for the inelegance of his statements, but stands by their substance, despite ample data debunking the dependency (above) and entitlement bases for the 47% Meme. I don’t believe that Romney believes that half of the people in the U.S. are pathetically entitled “victims.” He is a smart person, and this is a ludicrous line of reasoning. But what does it say about our bitterly partisan nation that heaping unmitigated scorn on the poor brings in big bucks from the base?

Hidden Beneficiaries of Federal Programs

In light of Romney’s comments regarding those who depend on the government, we thought we’d re-post this great data showing that many people who are using government social programs don’t know they are doing so.  

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Dolores R. sent in a fascinating image posted at boingboing. It comes from a paper by Suzanne Mettler, a professor in the Department of Government at Cornell. Mettler first asked survey participants whether they had ever used a federal U.S. government program. Then later in the survey she specifically asked respondents whether they had ever benefited from or participated in specific federal programs. As it turns out, large number of people who have benefited from various federal programs or policies do not recognize themselves as having done so. This table shows what percent of people who said they had participated in or used these 19 federal programs had earlier in the surveys said they had never used any social program:

Mettler argues that recipients are less likely to recognize themselves as benefiting from programs that are part of what she calls the “submerged state” — programs and policies that provide incentives and motivations for particular behaviors in the private sector, rather than overtly directing behavior. If you receive food stamps, you interact directly with a government agency, are required to periodically meet with a government worker and reapply to re-establish eligibility, and can point to a specific thing that links you to the program (these days usually a debit-type card rather than the old style coupons/stamps).

On the other hand, if you participate in the government’s mortgage interest deduction program, which encourages home ownership by allowing people to deduct the cost of mortgage interest from their taxable income (which you can’t do with rent costs, for instance), it’s less noticeable that you are benefiting from a federal policy. You get a form from your mortgage company that provides the relevant number, and you transfer it over to the correct line when you’re filling out taxes.

Notably, the programs recipients seem least likely to recognize as a government program are among those the middle (and higher) classes are most likely to use, while those more common among the poor are more clearly recognizable to those using them as government programs. Yet allowing you to write off mortgage interest (but not rent), or charitable donations, or the money you put aside for a child’s education, are all forms of government programs, ones that benefit some more than others. But the “submerged” nature of these policies hides the degree to which the middle and upper classes use and benefit from federal programs.

The Continuing Relevance of Class

Cross-posted at Reports from the Economic Front.

Politicians always seem to be talking about the middle class.  They need some new focus groups.  According to the Pew Research Center, over the past four years the percentage of adult Americans that say they are in the lower class has risen significantly, from a quarter to almost one-third (see chart below).

Pew also found that the demographic profile of the self-defined lower class has also changed.  Young people, according to Pew, “are disproportionately swelling the ranks of the self-defined lower classes.”   More specifically some 40% of those between 18 to 29 years of age now identify as being in the lower classs compared to only 25% in 2008.

Strikingly, the percentage of whites and blacks that see themselves in the lower class is now basically equal.  The percentage of whites who consider themselves in the lower class rose from less than a quarter in 2008 to 31% in 2012.  This brought them in line with blacks, whose percentage remained at a third.  The percentage of Latinos describing themselves as lower class rose to 40%, a ten percentage point increase from 2008.

And not surprisingly, as the chart below shows, many who self-identify as being in the lower class are experiencing great hardships.   In fact, 1 in 3 faced four or all five of the problems addressed in the survey.

In short, there is a lot of hurting in our economy.

Recession Recovery? Most New Jobs are Bad Jobs

Cross-posted at Reports from the Economic Front.

The media has focused on the lack of jobs as a major election issue.  But the concern needs to go beyond jobs to the quality of those jobs.

As a report by the National Employment Law Project makes clear, we are experiencing a low wage employment recovery.  This trend, the result of an ongoing restructuring of economic activity, has profound consequences for issues of poverty, inequality, and community stability.

The authors of the report examined 366 occupations and divided them into three equally sized groups by wage.  The lower-wage group included occupations which paid median hourly wages ranging from $7.69 to $13.83.  The mid-wage group range was from $13.84 to $21.13.   The higher-wage group range was from $21.14 to $54.55.

The figure below shows net employment changes in each of these groups during the recession period (2008Q1 to 2010Q1) and the current recovery (2010Q1 to 2012Q1).   Specifically:

  • Lower-wage occupations were 21 percent of recession losses, but 58 percent of recovery growth.
  • Mid-wage occupations were 60 percent of recession losses, but only 22 percent of recovery growth.
  • Higher-wage occupations were 19 percent of recession job losses, and 20 percent of recovery growth.

The next figure shows the lower-wage occupations with the fastest growth and their median hourly wages.  According to the report, three low-wage industries (food services, retail, and employment services) added 1.7 million jobs over the past two years, 43 percent of net employment growth.  According to Bureau of Labor Statistics projections these are precisely the occupations that can be expected to provide the greatest number of new jobs over the next 5-10 years.

 As the final figure shows, the decline in mid-wage occupations predates the recession.  Since the first quarter of 2001, employment has grown by 8.7 percent in lower-wage occupations and by 6.6 percent in higher-wage occupations.  By contrast, employment in mid-wage occupations has fallen by 7.3.


Significantly, as the report also notes, “the wages paid by these occupations has changed. Between the first quarters of 2001 and 2012, median real wages for lower-wage and mid-wage occupations declined (by 2.1 and 0.2 percent, respectively), but increased for higher-wage occupations (by 4.1 percent).”

A New York Times article commenting on this report included the following:

This “polarization” of skills and wages has been documented meticulously… A recent study found that this polarization accelerated in the last three recessions, particularly the last one, as financial pressures forced companies to reorganize more quickly.

“This is not just a nice, smooth process,” said Henry E. Siu, an economics professor at the University of British Columbia… “A lot of these jobs were suddenly wiped out during recession and are not coming back.”

Steady as she goes is just not going to do it and changes in taxes and spending programs, regardless of how significant, cannot compensate for the increasingly negative trends generated by private sector decisions about the organization and location of, as well as compensation for production.

The Power Elite: Connections Between Business and Politics in the U.S.

In 1956 sociologist C. Wright Mills published a book titled The Power Elite.  In it, he argued that our democracy was corrupt because the same people exercised power in business, the military, and politics.  This small group, with so many important roles and connections, had an influence on our society that was far out-of-proportion with their numbers.  This, he concluded, was a dire situation.

Fast forward to 2012 and Lambert Strether posted a series of Venn diagrams at Naked Capitalism.  Strether writes:

[This] nifty visualization… shows how many, many people, through the operations of Washington’s revolving door, have held high-level positions both in the Federal government and in major corporations. To take but one example, the set of all Treasury Secretaries includes Hank Paulson and Bob Rubin, which overlaps with the set of all Goldman Sachs COOs. The overlapping is pervasive. Political scientists and the rest of us have names for such cozy arrangements — oligarchy, corporatism, fascism, “crony capitalism” — but one name that doesn’t apply is democracy.

UPDATE: I’ve included a criticism of the methodology after the diagrams; the overlap portrayed here is almost exclusively among Democratic politicians and the diagrams were explicitly intended to point out connections among progressives.

See for yourself:

On the methods for putting together these diagrams, Strether writes about the person who’s behind the diagrams:

Herman’s honest: Her goal is to “expose progressive corporatism,” and — assuming for the sake of the argument that D[emocrat]s are progressive, and that “progressives” are progressive — her chart does exactly that, and very effectively, too.

But what her data does not do is expose corporatism as such; there are very, very few Rs listed; it strains credulity that Hank Paulson was the only high-level GS operative in the Bush administration, for example, and if GS isn’t the R[epublican]s’ favorite bank, there’s surely another.

Hence, Herman’s chart, if divorced from context[2], might lead somebody — say, a child of six — to conclude that the only corporatists in Washington DC are D[emocrat]s.

Thanks to Carolyn Taylor for pointing out the methods bias.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.