economics

Recently, Elizabeth Warren — Harvard Law professor and Massachusetts Senate candidate — was filmed discussing arguments that efforts to raise taxes on extremely high income earners is “class warfare,” an increasingly common refrain. She responds to this line of argument by questioning the individualist narrative of wealth — that is, that people who are rich did it all on their own, and thus owe nothing to society. As she points out, taxpayer-funded infrastructure and services — from highways to law enforcement to widely-available education — are essential elements of such financial success stories. But current discourse about wealth and taxes obscures the social nature of wealth creation, portraying taxation as unfair taking rather than a fair return on the public’s investment:

Transcript after the jump.

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Everyone says that they want an economic recovery.  So, why don’t we have one?  Most surveys of business people tell the same story: there is no recovery because business owners are unwilling to hire and they are unwilling to hire because people are not spending.

So, why aren’t people spending?  One reason is that many people are unemployed.  Another reason, one that business leaders doesn’t like to discuss, is that business has been boosting its profits by cutting worker pay.  And not just for the less educated who are said to be the unfortunate victims of technology and globalization.  Rather, as the chart below shows, for workers in almost all educational categories.

The average earnings of workers in almost all educational categories declined between 2000 and 2010.  Talk about a lost decade for working people!  Only those with an MD, JD, MBA or PhD enjoyed a real increase over the period, and those workers make up only 3% of the workforce.

The average earnings of college graduates, 19.5% of the workforce, declined (adjusted for inflation) by approximately 8%.  Interestingly, the average earnings of high school graduates, 30.7% of the workforce, actually suffered a smaller decline.

These numbers make clear that the solution to our economic problems is not more education.  Even those with Masters Degrees lost money on average.  Recovery will require real structural change in the way our economy operates.

Yesterday NPR reported that Wisconsin is considering repealing its ban on margarine in private businesses and public buildings. What is that all about!? This old post offers some great historical context.

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Grass fed cows tend to produce milk that, when made into butter, has a slightly yellow color.  When margarine was invented as a butter substitute and they began producing it for U.S. consumption in the late 1880s, one marketing problem was its color.  The vegetable-based product has a clear, white-ish color and looks something like lard; many people found it unappetizing.  So the margarine people wanted to dye margarine yellow.

The dairy industry rightly saw margarine as a threat and they lobbied politicians both to outright ban margarine or to ban dying it to look like butter.  The federal government imposed a two cent per pound tax on the product in The Margarine Act of 1886 (the tax was quintupled in 1902).  Many states, especially dairy states, made dying margarine illegal (e.g., New York, New Jersey, and Maryland).  By 1902, “32 states and 80% of the U.S. population lived under margarine color bans.”

The ad below is for “Golden Yellow” margarine and specifies that it is “ready to spread” in 26 states (more text transcribed below):

In some states, margarine manufacturers would sell margarine in plastic bags with a small bead of dye that the buyer had to knead into the spread (“Color-Kwik bags”).  This practice continued through World War II. If you judge by this ad, it was quite a good time:

Over time, as supply and demand for butter and margarine ebbed and flowed alongside federal rules and penalizing taxes on margarine, the popularity of each ebbed and flowed too.  Then, in 1950, margarine was apparently the “the talk of the country” and President Truman put an end to the oppression of margarine, in part because the National Association of Margarine Manufacturers had begun to build enough power to compete with dairy associations.  Wisconsin, the cheese state, was the last anti-margarine state hold out (till 1967), but it continued to forbid margarine in public places (unless requested; as of Sept. 2011).

By 1957, sales of margarine exceeded those of butter. Margarine still outsells butter today. And, in a bizarre reversal, butter manufacturers now regularly dye butter yellow.

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All that said, here is an excerpt from Audre Lorde’s The Uses of the Erotic in which she uses the bead of dye in the bag of margarine as a metaphor for sexuality:

During World War II, we bought sealed plastic packets of white, uncolored margarine, with a tiny, intense pellet of yellow colloring perched like a topaz just inside the clear skin of the bag.  We would leave the margarine out for a while to soften, and then we would pinch the little pellet to break it inside the bag, releasing the rich yellowness into the soft pale mass of margarine.  Then taking it carefully between our fingers, we would knead it gently back and forth, over and over, until the color had spread throughout the whole pound bag of margarine, thoroughly coloring it.

I find the erotic such a kernel within myself.  When released from its intense and constrained pellet, it flows through and colors my life with a kind of energy that heightens and sensitizes and strengthens all my experience.

Sources: Vintage Ads, Found in Mom’s Basement, Britannica, Margarine.org, and FoodReference.

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.

The U.S. Energy Information Administration (EIA) just released a new report on projected growth in global energy consumption. In case you were wondering, it’s going to continue to climb, by an estimated 53% by 2035. And the majority of that energy use will occur in countries outside the highly industrialized nations that are members of the Organisation for Economic Co-operation and Development (OECD; map of member states):

That said, while non-OECD countries will consume the majority of energy, the OECD nations will continue to lead the world in carbon emissions per person, still more than twice that of non-OECD nations by 2035, according to projections:

While renewable energy sources will increase as a proportion of all electricity production, fossil fuels, especially coal and natural gas, will continue to be the most important sources:

If you are fascinated by the ins and outs of global energy use — how much different nations use, what different types of energy source are used for (electricity, transportation, etc.), and how carbon intensive different economies are — check out the full report, as it’s chock full of data. There are also customizable tables that allow you to select topics of interest and see trends in different nations over time. But I warn you: if, say, global climate change worries you, this isn’t exactly a soothing read.

(Via Talking Points Memo.)

American Public Media’s Marketplace posted a short animated video summing up the potential problems with health care as an economic development strategy. Many cities are building large, fancy medical facilities with the hopes of drawing “medical tourists,” patients from other areas who would travel to receive care at state-of-the-art facilities, thus creating jobs and injecting money into the surrounding community. Given that we hear that the need for health care providers will grow greatly in the future, this seems like a risk-free plan. But as the video shows, these development strategies can lead to over-supply of services and increased overall cost of health care, without the promised benefits to local economies:

Oh The Jobs (Debt?) You’ll Create! from Marketplace on Vimeo.

For another example of economic development fads that don’t necessarily pay off, see our previous post about sports stadiums.

The Census Bureau just published new data revealing trends in living standards as of 2010.  The trends are troubling to say the least. Median household income (adjusted for inflation) fell to $49,445.  That means that the median household now earns less than it did a decade ago.  This marks the first decade since the Great Depression without an increase in real median income.

According to Lawrence Katz, a labor expert and Harvard economist:

This is truly a lost decade.  We think of America as a place where every generation is doing better, but we’re looking at a period when the median family is in worse shape than it was in the late 1990s.

The percentage of Americans living in poverty hit 15.1 percent, the highest percentage since 1993.  There are now 46.2 million people living below the poverty line, the greatest number ever recorded by the Census Bureau. Child poverty stood at 22 percent.

Things are unlikely to get better this year.  State and local governments are slashing employment and programs and the federal government is now moving into cutting mode itself.

This depressing situation is not simply a recession phenomenon.  As the New York Times reports, the expansion period of 2001 to 2007 “was the first… on record where the level of poverty was deeper, and median income of working-age people was lower, at the end than at the beginning.”

Of course, while the great majority of people are struggling, a small minority have been doing very well.  One consequence, as the chart below highlights, is a strong growth in inequality (as measured by the Gini coefficient with higher numbers reflecting greater inequality).  As I noted in a previous post, over the years 2002 to 2007, the top 1% of households captured 58% of all the income generated.

In brief, there is a small minority that is doing very well and a great majority that is struggling, with a significant number in free fall.

The Atlantic posted several graphs from a recent Census Bureau report on income and poverty as of 2010. The racial differences in median household income are truly awful; half of African American families make less than $32,000 a year. Stop and just seriously think, for a second, about the dramatic difference in access to resources — decent housing, some savings for emergencies, retirement accounts, etc. — these numbers translate into:

Not surprisingly, the percentage of Americans falling below the poverty line rose:

For more on income, poverty, and health insurance coverage, check out the full Census Bureau report.

A longer version is cross-posted at Montclair SocioBlog.

Long before the Freakonomics guys hit the best seller list by casting their economic net in sociological waters, there was Gary Becker.  If you want to explain why people (some people) commit crimes or get married and have babies, Becker argued, just assume that people are economically rational.  Follow the money and look at the bottom line.  You don’t need concepts like culture or socialization, which in any case are vague and hard to measure.*

Becker wrote no best-sellers, but he did win a Nobel.  His acceptance speech: “The Economic Way of Looking at Behavior.”

In a Wall Street Journal op-ed Friday about the recession, Becker started off Labor Day weekend weighing in on unemployment and the stalled recovery.  His explanation: in a word, uncertainty.

These laws [financial regulation, consumer protection] and the continuing calls for additional regulations and taxes have broadened the uncertainty about the economic environment facing businesses and consumers. This uncertainty decreased the incentives to invest in long-lived producer and consumer goods. Particularly discouraged was the creation of small businesses, which are a major source of new hires.

There’s something curious about this.  Becker pushes uncertainty to the front of the line-up and says not a word about the usual economic suspects – sales, costs, customers, demand.  It’s all about the psychology of those in small business, their perceptions and feelings of uncertainty.  Not only are these vague and hard to measure, but as far as I know, we do not have any real data about them.  Becker provides no references.  The closest thing I could find was a small business survey from last year, and it showed that people in small business were far more worried about too little demand than about too much regulation.

Compared with Regulation, twice as many cited Sales as the number one problem.  (My posts on uncertainty from earlier this summer are here and here.)

In addition, the sectors of the economy that should be most uncertain about regulation – finance, mining and fuel extraction, and medical care – are those where unemployment is lowest.

More, as David Weidner writes in the Wall Street Journal, taxes, interest rates, and regulation at an all-time low.

[The uncertainty-about-taxes-and-regulation argument] would make more sense if, say, taxes were already high and might be going higher or regulatory burdens were heavy and might be getting heavier. But when taxes are at a 60-year low and the regulations are pretty much the same as they were in the 1990s boom, the argument makes no sense at all (Mark Thoma quoting an e-mail from Gary Burtless).

If it’s really uncertainty caused by these things that causes a reluctance to hire, the time to invest and hire should be now.

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* This is an oversimplified version, but it will do for present purposes.