economics

Cross-posted at Reports from the Economic Front.

One of the subthemes of current discussions about how best to reduce our national debt is that we must rein in out-of-control spending on federal safety net programs.   The reality is quite different.

The chart below shows spending trends in terms of GDP for the ten major needs-tested benefit programs that make-up our federal social safety net. The programs, in the order listed on the chart, are:

• The refundable portion of the health insurance tax credit enacted in the 2010 health care reform law
• Medicaid and the Children’s Health Insurance Program (CHIP)
• The Supplemental Nutrition Assistance Program (SNAP)
• Financial assistance for post-secondary students (Pell Grants)
• Compensatory Education Grants to school districts
• Assisted Housing
• The Earned Income Tax Credit (EITC)
• The Additional Child Tax Credit (ACTC)
• Supplemental Security Income (SSI)
• Family Support Payments

As Jared Bernstein explains:

…for all the popular wisdom that programs to help low-income people are swallowing the economy, the truth is that like so much else that plagues our fiscal future, it’s all about health care spending.  The figure shows that as a share of GDP, prior to the Great Recession, non-health care spending was cruising along at around 1.5% for decades.  It was Medicaid/CHIP (Medicaid expansion for kids) that did most of the growing.

The takeaway from this: we need a new health care system (think single payer).

Regardless, the recent explosion in the ratio of Medicare/CHIP spending to GDP is largely due to the severity of the Great Recession, not the generosity of the programs. The recession increased poverty and thus eligibility for the programs, thereby pushing up the numerator, while simultaneously lowering GDP, the denominator.   Moreover, spending on all non-health care safety net programs is on course to dramatically decline as a share of GDP. Even Medicare/Chip spending is projected to stabilize as a share of GDP.

These programs are essential given the poor performance of the economy, and in most cases poorly-funded. Cutting their budgets will not only deny people access to health care, housing, education, and food, it will also further weaken the economy, in both the short and long run.

—————————

Martin Hart-Landsberg is a professor of Economics and Director of the Political Economy Program at Lewis and Clark College.  You can follow him at Reports from the Economic Front.

For the last week of December, we’re re-posting some of our favorite posts from 2012. Cross-posted at Pacific Standard and Global Policy TV.

The United States is unusual among developed countries in guaranteeing exactly zero weeks of paid time-off from work upon the birth or adoption of a child. Japan offers 14 weeks of paid job-protected leave, the U.K. offers 18, Denmark 28, Norway 52, and Sweden offers 68 (yes, that’s over a year of paid time-off to take care of a new child).

The U.S. does guarantee that new parents receive 12 weeks of non-paid leave, but only for parents who work in companies that employ 50 workers or more and who have worked there at least 12 months and accrued 1,250 hours or more in that time.  These rules translate to about 1/2 of women.  The other half are guaranteed nothing.

Companies, of course, can offer more lucrative benefits if they choose to, so some parents do get paid leave.  This makes the affordability of having children and the pleasure and ease with which one can do so a class privilege.  A new report by the U.S. Census Bureau documents this class inequality, using education as a measure.  If you look at the latest data on the far right (2006-2008), you’ll see that the chances of receiving paid leave is strongly correlated with level of education:

Looking across the entire graph, however, also reveals that this class inequality only emerged in the early 1970s and has been widening ever since.  This is another piece of data revealing the way that the gap between the rich and the poor has been widening.

Just to emphasize how perverse this is:

• People with more education, who on average have higher incomes, are often able to take paid time off; but less-economically advantaged parents are more likely to have to take that time unpaid.  During the post-birth period, then, the economic gap widens.

There’s more:

• Many less-advantaged parents can’t afford to take time off un-paid, so they keep working.  But even this widens the gap because their salary is lower than the salary the richer person continues to receive during their paid time off of work.  So the rich get paid more for staying home than the poor get for going to work.

We often use the minimizing word  “just” when  describing what stay-at-home parents do.  “What are you doing these days?” asks an old friend at a class reunion.  “Oh, just staying home and taking care of my kids,” a parent might say, as if raising kids is “doing nothing.”  We trivialize what parents do.  But, in fact, raising children is a valuable contribution to the nation.  We need a next generation to keep moving forward as a country.  Unfortunately the U.S. continues to treat having kids like a hobby (something its citizens choose to do for fun, and should pay for themselves).  Without state support for early parenting, being present in those precious early months is a class-based privilege, one that ultimately exacerbates the very class disadvantage that creates unequal access to the luxury of parenting in the first place.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Cross-posted at Reports from the Economic Front.

The stock market looms large in our understanding of the economy.  The business news is often little more than a report on the movement of the market.  High school economics classes often introduce the study of the economy to students by encouraging them to pick and follow a favorite stock.  Managers of corporations are judged by how well their actions result in higher stock prices.

All this could easily lead one to think that the great majority of Americans are stockholders.  In fact, as the chart below shows, very few Americans own significant shares of stock and therefore directly benefit from the market’s rise.

It is easy to understand why the top earners are happy with this identification of the economy with the stock market.  It ensures that economic activity is largely organized and outcomes evaluated with their interests in mind.  What is not so easy to understand is why the great majority of working people continue to accept this identification.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

The following two charts taken from a Center for Economic Policy and Research Center study by John Schmitt and Janelle Jones highlight the distressed nature of the U.S. labor market and the need for raising the minimum wage and strengthening union organizing.

Schmitt and Jones define low wage work as that work paying $10.00 an hour or less in 2011 dollars.  As the charts show, low wage workers are far more educated and older in 2011 than in 1979.

Education and experience are not sufficient to ensure a living wage.

Not surprisingly, growing numbers of low wage workers at Walmart and at chain fast food restaurants have begun engaging in direct action for higher wages and better working conditions.   They deserve our support.

—————————

Martin Hart-Landsberg is a professor of Economics and Director of the Political Economy Program at Lewis and Clark College.  You can follow him at Reports from the Economic Front.

I was finishing up my dissertation in 2006.  The Great Recession was still two years away.  Nevertheless, there was talk about it being a tough job market for newly-minted sociologists and, like most everybody in my shoes, I was scared sh*tless about getting a job.

It’s obvious now that I was extremely lucky to get out of grad school when I did.  A few years later the American Sociological Association (ASA) would report that the number of jobs for new PhDs fell 40% from ’06/’07 to ’08/’09 (sociologists have a job “season” that straddles the New Year).

Neal Caren, a (gloriously employed) sociologist at UNC Chapel Hill, has been tracking the job market himself ever since.  His data, posted at Scatterplot, shows that the discipline has yet to recover from the Great Recession (if that’s the sole cause of the decline in job openings).  The yellow and green line represent the drop captured in the ASA report.  The purple line represents the devastating next year and the two blue-ish lines represent a slight recovery.

This year, however, the thick orange line, reveals that this year’s market is not signalling a recovery to the job market of my own debut.  It’s up 5% from last year, Caren explains,  15% from 2010, and “a whopping 73% from 2009.”  Extrapolating from the ASA data, we’re still down 33% from ’06/’07.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

In 2011 the U.S. birth rate dropped to the lowest ever recorded, according to preliminary data released by the National Center for Health Statistics and reported by Pew Social Trends:

The decline was led by foreign-born women, who’s birthrate dropped 14% between 2007 and 2010, compared to a 6% drop for U.S.-born women.

Considering the last two decades, birthrates for all racial/ethnic groups and both U.S.- and foreign-born women have been dropping, but the percent change is much larger among the foreign-born and all non-white groups.  The drop in the birthrate of foreign-born women is double that of U.S.-born and the drop in the birthrate of white women is often a fraction that of women of color.

It’s easy to forget that effective, reversible birth control was invented only about 50 years ago.  Birth control for married couples was illegal until 1965; legalization for single people would follow a few years later.  In the meantime, the second wave of feminism would give women the opportunity to enter well-paying, highly-regarded jobs, essentially giving women something rewarding to do other than/in addition to raise children.  The massive drop in the birthrate during the ’60s likely reflects these changes.

In addition to a drop in the number of children women are having, this data reflects a steady rise in the number of women deciding not to have children at all.  The decision to eschew parenting altogether is disproportionately high among highly educated women, suggesting that the there-are-now-other-things-in-life-to-do phenomenon might be at play.

Many European countries are facing less than replacement levels of fertility and scrambling to figure out what to do about it (the health of most economies in the developed world is predicated on population growth), the U.S. is likely not far behind.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

There are six (progressive) tax brackets for income.  The tax rate paid by earners is bumped up each time they reach a bracket threshold.  The threshholds are determined by type of household.  Here’s a handy chart for 2012 from Wikipedia:

U.S. politicians are now debating how these tax rates should change and they often focus on the “marginal” or “top” tax rate.  That’s the one that applies to the highest tax bracket, right now at 35%.

Dylan Matthews at the WonkBlog notes that the squabbling has been mostly over a percentage point or two.  Small beans, he asserts.  To put this in perspective, he includes this graph of fluctuations in the top tax rates throughout history (click to enlarge):

The green line labeled “income” correlates to the chart above.  You can see that especially income, but also corporate and capital gains top tax rates, have been shockingly variable since 1910.  They were about 25% right before the Great Depression, raised to about 95% during World War II, dropped to about 70% in the ’60s, and have been on the decline ever since.

Matthews refers to a pair of economists, Nobel laureate Peter Diamond and Emmanuel Saez, who argue that the top tax rate should optimally be 73%.  Sociologist Jose Marichal, however, at ThickCulture, observes that tax policy has rarely been about what is optimal for society.  Instead, he writes:

What these wild shifts in tax policy suggest is that our determination of how much we should tax our wealthiest is not based on any pragmatic assessment of what would result in the best policy outcome, but is rather guided by foundational assumptions about what is fair.

Beliefs about what is fair are, of course, strongly influenced by cultural ideologies and group stereotypes.  Politicians both fall victim to their own biases and strategically invoke and create ideas and resentments.  We shouldn’t expect the current debate over how to change our tax code to be either rational or practical, then.  The debate will be political, but you already knew that.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Cross-posted at Reports from the Economic Front.

With the election over, the news is now focused, somewhat hysterically, on the threat of the fiscal cliff.

The fiscal cliff refers to the fact that at the end of this calendar year several temporary tax cuts are scheduled to expire (including those that lowered rates on income and capital gains as well as payroll taxes) and early in the next year spending cuts are scheduled for military and non-military federal programs.  See here for details on the taxes and programs.

Most analysts agree that if tax rates rise and federal spending is cut the result will be a significant contraction in aggregate demand, pushing the U.S. economy into recession in 2013.

The U.S. economy is already losing steam.  GDP growth in the second half of 2009, which marked the start of the recovery, averaged 2.7% on an annualized basis.  GDP growth in 2010 was a lower 2.4%.  GDP growth in 2011 averaged a still lower 2.0%.  And growth in the first half of this year declined again, to an annualized rate of 1.8%.

With banks unwilling to loan, businesses unwilling to invest or hire, and government spending already on the decline, there can be little doubt that a further fiscal tightening will indeed mean recession.

So, assuming we don’t want to go over the fiscal cliff, what are our choices?

Both Republicans and Democrats face this moment in agreement that our national deficits and debt are out of control and must be reduced regardless of the consequences for overall economic activity.  What they disagree on is how best to achieve the reduction.  Most Republicans argue that we should renew the existing tax cuts and protect the military budget.  Deficit reduction should come from slashing the non-military discretionary portion of the budget, which, as Ethan Pollack explains, includes:

…safety net programs like housing vouchers and nutrition assistance for women and infants; most of the funding for the enforcement of consumer protection, environmental protection, and financial regulation; and practically all of the federal government’s civilian public investments, such as infrastructure, education, training, and research and development.

The table below shows the various programs/budgets that make up the non-security discretionary budget and their relative size.  The chart that follows shows how spending on this part of the budget is already under attack by both Democrats and Republicans.

Unfortunately, the Democrat’s response to the fiscal cliff is only marginally better than that of the Republicans.  President Obama also wants to shrink the deficit and national debt, but in “a more balanced way.”  He wants both tax increases and spending cuts.  He is on record seeking $4 trillion in deficit reduction over a ten year period, with a ratio of $2.50 in spending cuts for every $1 in new revenue.

The additional revenue in his plan will come from allowing tax cuts for the wealthy to expire, raising the tax rate on the top income tax bracket, and limiting the value of tax deductions.  While an important improvement, President Obama is also committed to significant cuts in non-military discretionary spending.  Although his cuts would not be as great as those advocated by the Republicans, reducing spending on most of the targeted programs makes little social or economic sense given current economic conditions.

So, how do we scale the fiscal cliff in a responsible way?

We need to start with the understanding that we do not face a serious national deficit or debt problem.  As Jamie Galbraith notes:

…is there a looming crisis of debt or deficits, such that sacrifices in general are necessary? No, there is not. Not in the short run — as almost everyone agrees. But also: not in the long run. What we have are computer projections, based on arbitrary — and in fact capricious — assumptions. But even the computer projections no longer show much of a crisis. CBO has adjusted its interest rate forecast, and even under its “alternative fiscal scenario” the debt/GDP ratio now stabilizes after a few years.

Actually, as the chart below shows, the deficit is already rapidly falling.  In fact, the decline in government spending over the last few years is likely one of the reasons why our economic growth is slowing so dramatically.

As Jed Graham points out:

From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.  That’s just a bit faster than the 3.0 percentage point deficit improvement from 1995 to ’98, but at that point, the economy had everything going for it.

Other occasions when the federal deficit contracted by much more than 1 percentage point a year have coincided with recession. Some examples include 1937, 1960 and 1969.

In short, we do not face a serious problem of growing government deficits.  Rather the problem is one of too fast a reduction in the deficit in light of our slowing economy.

As to the challenge of the fiscal cliff — here we have to recognize, as Josh Bivens and Andrew Fieldhouse explain, that:

…the budget impact and the economic impact are not necessarily the same. Some policies that are expensive in budgetary terms have only modest economic impacts (for example, the 2001 and 2003 tax cuts aimed at high-income households are costly but do not have much economic impact). Conversely, other policies with small budgetary costs have big economic impacts (for example, extended unemployment insurance benefits).

In other words, we should indeed allow the temporary tax rate deductions for the wealthy to expire, on both income and capital gains taxes.  These deductions cost us dearly on the budget side without adding much on the economic side.  As shown here and here, the evidence is strong that the only thing produced by lowering taxes on the wealthy is greater income inequality.

Letting existing tax rates rise for individuals making over $200,000 and families making over $250,000 a year, raising the top income tax bracket for both couples and singles that make more than $388,350, and limiting tax deductions will generate close to $1.5 trillion dollars over ten years as highlighted below in a Wall Street Journal graphic .

However, in contrast to President Obama’s proposal, we should also support the planned $500 billion in cuts to the military budget.  We don’t need the new weapons and studies are clear that spending on the military (as well as tax cuts) is a poor way to generate jobs.  For example, the table below shows the employment effects of spending $1 billion on the military versus spending the same amount on education, health care, clean energy, or tax cuts.

And, we should also oppose any cuts in our non-security discretionary budget. Instead, we should take at least half the savings from the higher tax revenues and military spending cuts — that would be a minimum of $1 trillion — and spend it on programs designed to boost our physical and social infrastructure.  Here I have in mind retrofitting buildings, improving our mass transit systems, increasing our development and use of safe and renewable energy sources like wind and solar, and expanding and strengthening our social services, including education, health care, libraries, and the like.

Our goal should be a strong and accountable public sector, good jobs for all, and healthy communities, not debt reduction.  The above policy begins to move us in the right direction.

—————————

Martin Hart-Landsberg is a professor of Economics and Director of the Political Economy Program at Lewis and Clark College.  You can follow him at Reports from the Economic Front.