When compromise is ruled out in a power struggle, the alternative is to fight it out to the bitter end. There will be a clear winner and loser, for better or (more likely) for worse. Game theorists call it a “zero-sum game,” and they have devoted decades to modeling ways to avoid it.
Unfortunately, the radical right – with the Tea Party in the vanguard and the Koch brothers hiding behind the curtain – has declared war. This is no game for them. They are out to strip workers of their bargaining power and complete the work of gutting the middle class. And, while they’re at it, the much-touted budget cuts passed by the House of Representatives (which will hardly dent our deficit) are laced with frontal assaults on environmental regulation, financial regulation, health care regulation (and reform), various supports for the unemployed and the poor, and, while they’re at it, would undermine the ability of the IRS to collect taxes.
This is civil war disguised as fiscal responsibility. The betting now is that the Tea Party will force a shutdown of the government and blame President Obama. As I have been saying, this is going to get ugly.
Sunday, February 27, 2011
Saturday, February 26, 2011
“Make Everybody Hurt”
The New York Times op-ed columnist David Brooks is a mild mannered conservative. No foaming at the mouth. No diatribes against that socialist in the White House.
However, his fangs were showing the other day when he blandly asserted in his February 21st column that our national debt crisis will take decades to unravel and that we will be cutting public spending for as far as the eye can see. He proposes a new unwritten “austerity constitution” with the guiding principle “make everybody hurt.” The cuts should be spread “equitably,” he says.
Funny thing, he only referred to cuts. He didn’t mention tax increases for anyone (we wouldn’t want to spoil our record for having the lowest overall tax rates in the industrialized world). Nor did he mention ending fat-cat tax subsidies, like oil depletion allowances for BP or crop subsidies for millionaire mega-farmers.
It’s time to resurrect an older equity principle. It was called “soak the rich.” True, we might end up with a few less million-dollar yachts, but there would also be a lot fewer hungry people out there (some 50 million at various times last year, in case you didn’t notice). David Brooks doesn’t seem to get it. A lot of us are already “hurting.”
However, his fangs were showing the other day when he blandly asserted in his February 21st column that our national debt crisis will take decades to unravel and that we will be cutting public spending for as far as the eye can see. He proposes a new unwritten “austerity constitution” with the guiding principle “make everybody hurt.” The cuts should be spread “equitably,” he says.
Funny thing, he only referred to cuts. He didn’t mention tax increases for anyone (we wouldn’t want to spoil our record for having the lowest overall tax rates in the industrialized world). Nor did he mention ending fat-cat tax subsidies, like oil depletion allowances for BP or crop subsidies for millionaire mega-farmers.
It’s time to resurrect an older equity principle. It was called “soak the rich.” True, we might end up with a few less million-dollar yachts, but there would also be a lot fewer hungry people out there (some 50 million at various times last year, in case you didn’t notice). David Brooks doesn’t seem to get it. A lot of us are already “hurting.”
Friday, February 25, 2011
A Betrayal Disguised as Fairness
It’s certainly true that our federal government and our states have serious fiscal problems. But the test of any society worthy of the name is how it deals with its problems. Are the remedies apportioned fairly in terms of who is to blame and who will suffer the least? Is everyone sharing equitably in shouldering the burdens?
Just listen to Republican (Tea Party) Representative Rául Labrador of Idaho. “We have no money, and we need your help,” he told constituents in Coeur d’Alene this week. “Everyone needs to share in the responsibility, and everybody needs to share in the sacrifice we need to make to make sure that the United States stands as the beacon to the world.”
Unfortunately, “everyone” doesn’t include the rich Americans whose tax cuts during the Bush years, coupled with “unfunded liabilities” for two wars and Medicare drug benefits, are responsible for a good share of the federal deficit. And it doesn’t include the Wall Street bankers who bear heavy responsibility for the financial meltdown that cratered both the federal budget and the budgets of most of our states. If everyone truly shared the responsibility, there would be at least temporary tax increases targeted to the affluent to help close the gap. But this is not even on the agenda. So what’s left of the middle class and the poor who will have to bear the burden alone.
Equally egregious, in my view, is the attack on public employee fringe benefits. These are contractual promises made in the past by our elected representatives who then failed to provide the funding to cover their promises. Moreover the relatively generous benefits (on the whole) were explicitly promised as offsets for public sector wage scales that are generally lower than in the private sector. Now the “unfunded liability” nationwide amounts to an estimated $3 trillion. So the proposed solution is to slash the benefits, of course.
This is a betrayal of the very concept of fairness. It’s a cold war, and what is happening in the streets in and around some of our state capitals is only the beginning of the pushback against those in our midst who seem to be fairness challenged. Rep. Labrador is wrong. It’s Egypt that is the “beacon.” Our beacon has been outsourced.
Just listen to Republican (Tea Party) Representative Rául Labrador of Idaho. “We have no money, and we need your help,” he told constituents in Coeur d’Alene this week. “Everyone needs to share in the responsibility, and everybody needs to share in the sacrifice we need to make to make sure that the United States stands as the beacon to the world.”
Unfortunately, “everyone” doesn’t include the rich Americans whose tax cuts during the Bush years, coupled with “unfunded liabilities” for two wars and Medicare drug benefits, are responsible for a good share of the federal deficit. And it doesn’t include the Wall Street bankers who bear heavy responsibility for the financial meltdown that cratered both the federal budget and the budgets of most of our states. If everyone truly shared the responsibility, there would be at least temporary tax increases targeted to the affluent to help close the gap. But this is not even on the agenda. So what’s left of the middle class and the poor who will have to bear the burden alone.
Equally egregious, in my view, is the attack on public employee fringe benefits. These are contractual promises made in the past by our elected representatives who then failed to provide the funding to cover their promises. Moreover the relatively generous benefits (on the whole) were explicitly promised as offsets for public sector wage scales that are generally lower than in the private sector. Now the “unfunded liability” nationwide amounts to an estimated $3 trillion. So the proposed solution is to slash the benefits, of course.
This is a betrayal of the very concept of fairness. It’s a cold war, and what is happening in the streets in and around some of our state capitals is only the beginning of the pushback against those in our midst who seem to be fairness challenged. Rep. Labrador is wrong. It’s Egypt that is the “beacon.” Our beacon has been outsourced.
Tuesday, February 22, 2011
Interesting Correlation
This is uncorroborated, but it comes from a credible source. It seems there is a strong correlation between collective bargaining (unions) for educators and state rankings on ACT/SAT scores. Only five states ban collective bargaining. Their test score rankings are as follows: South Carolina (50th), North Carolina (49th), Georgia (48th), Texas (47th) and Virginia (44th). Wisconsin, the first state in the union to allow collective bargaining for public employees, ranks second in the nation – for now, at least. Maybe it's true in education as elsewhere that you get what you pay for -- and vice versa.
Sunday, February 20, 2011
Fiscal Fairness
It’s usually the case that social programs are regularly harassed by legislators (especially Republicans) and are the first to be cut when times are tough. But in the state of Washington there is a move to subject tax breaks for such things as private jets, elective cosmetic surgery, and profits for out-of-state banks on Washington mortgages to similar scrutiny.
A bill in the state legislature, backed by two dozen sponsors, would eliminate such unjustified tax breaks (there are no public benefits). The additional tax revenue (perhaps $150 million) would be used to sustain social service programs like Washington’s Basic Health Plan, instead of having to make cuts. In a fair society, this would be a no-brainer. Unfortunately, in our society we pay lip-service to fairness and genuflect to greed.
A bill in the state legislature, backed by two dozen sponsors, would eliminate such unjustified tax breaks (there are no public benefits). The additional tax revenue (perhaps $150 million) would be used to sustain social service programs like Washington’s Basic Health Plan, instead of having to make cuts. In a fair society, this would be a no-brainer. Unfortunately, in our society we pay lip-service to fairness and genuflect to greed.
Saturday, February 19, 2011
The Wisconsin Idea
Wisconsin was the seed-bed of social reform in this country in the 20th century – it was known as “the Wisconsin idea” -- and home to the Progressive Party in the 1920s. One of its famous sons, Governor Robert La Follette, ran for president in 1924. Now Wisconsin is a leading example of another idea -- an attack on public sector workers that reeks of unfairness.
Over the years, public employees have traditionally been paid lower wages than comparable private sector workers. Collective bargaining – unionization – enabled these workers to close the gap in many states. But the preferred approach in many cases was to hold down wages and offer generous fringe benefits instead. All well and good, except that many of these states failed to fund these “liabilities.” Now this betrayal of a contractual obligation has added fuel to the fiscal crisis that most states are facing.
So the new (Republican) Wisconsin idea is to provide tax cuts for businesses and impose pay and benefit cuts on public sector workers and, while they’re at it, taking away their collective bargaining rights. Moreover, they’re proud of it. Wisconsin’s Governor Scott Walker, who is leading the attack, was quoted as saying “I hope I’m an inspiration.”
No wonder there’s a revolt going on in the streets of Cairo (I mean Madison). These Republicans don’t seem to understand the concept of fairness.
Over the years, public employees have traditionally been paid lower wages than comparable private sector workers. Collective bargaining – unionization – enabled these workers to close the gap in many states. But the preferred approach in many cases was to hold down wages and offer generous fringe benefits instead. All well and good, except that many of these states failed to fund these “liabilities.” Now this betrayal of a contractual obligation has added fuel to the fiscal crisis that most states are facing.
So the new (Republican) Wisconsin idea is to provide tax cuts for businesses and impose pay and benefit cuts on public sector workers and, while they’re at it, taking away their collective bargaining rights. Moreover, they’re proud of it. Wisconsin’s Governor Scott Walker, who is leading the attack, was quoted as saying “I hope I’m an inspiration.”
No wonder there’s a revolt going on in the streets of Cairo (I mean Madison). These Republicans don’t seem to understand the concept of fairness.
Thursday, February 17, 2011
Fairness Quiz (3)
In the opening of his new book, Justice, Michael Sandel recounts how various local merchants responded to the devastation caused in Florida by Hurricane Charley back in 2004. It seems many of them were quick to kite their prices. Household generators normally selling for $250 were now $2000. Two dollar bags of ice now went for $10. Motel rooms for those who lost their homes jumped from $40 to $160. And so on.
Many Floridians were angered by these “vultures.” Some commentators likened it to extortion, and Florida’s then Attorney General, Charlie Crist, activated the state’s price gouging laws to prosecute some of the worst offenders.
However, the well-known free-market (conservative) economist Thomas Sowell disagreed. Price gouging is a meaningless expression, he said. These price hikes were the normal workings of the market place (supply and demand). Basic economics tells us that prices will rise when there is a surge on the demand side. This is the market’s way of “allocating” the supply and (in theory at least) creating incentives to add to the supply (like more hotel rooms?). Markets are concerned only with efficiency (and the ability to pay). They are indifferent to suffering, to need, and to poverty.
Most free-market conservatives I suspect would agree. So, what do you think?
Many Floridians were angered by these “vultures.” Some commentators likened it to extortion, and Florida’s then Attorney General, Charlie Crist, activated the state’s price gouging laws to prosecute some of the worst offenders.
However, the well-known free-market (conservative) economist Thomas Sowell disagreed. Price gouging is a meaningless expression, he said. These price hikes were the normal workings of the market place (supply and demand). Basic economics tells us that prices will rise when there is a surge on the demand side. This is the market’s way of “allocating” the supply and (in theory at least) creating incentives to add to the supply (like more hotel rooms?). Markets are concerned only with efficiency (and the ability to pay). They are indifferent to suffering, to need, and to poverty.
Most free-market conservatives I suspect would agree. So, what do you think?
Wednesday, February 16, 2011
The World According to Gini
No, Gini is not a lady of the night. It’s a widely used statistic, first developed by the Italian statistician Corrado Gini in 1912, that measures the disparity in incomes within a society. It tells us a lot about the underlying values, especially of the rich and powerful (the elite) in any given society.
There are various ways of calculating this statistic, but the most popular method involves a comparison between the top and bottom 10 percent of the population. The result is a single index number ranging somewhere between zero (in a perfectly egalitarian, Marxian paradise) and 100 (meaning that the top X percent receives all of the income).
Needless to say, all known societies are somewhere in between, but the comparisons among them are highly revealing. Let’s look at some examples (I will be using the CIA’s World Factbook calculations for 2005 and 2007.)
Among the 30 odd members of the Organization for Economic Cooperation and Development (OECD), Sweden has the lowest (most egalitarian) Gini index number (23). Norway is close (25), followed by Germany (27), the Netherlands (30.9) and Canada (32.1). At the other end of the distribution, we find countries like China (41.5), Mexico (48.2) and, yes, the United States (46.8). Equally revealing, I think, are some of the historical trends. Some countries have become more egalitarian over time – like France, Norway, Canada and Mexico – while others have trended in the opposite direction, notably China, Brazil and, yes, the U.S. According to U.S. Census Bureau estimates, in 1947 our Gini index number was 37.6. In 1980, at the outset of Ronald Reagan’s “morning in America” presidency, it had increased to 40.3, and it has been increasing steadily ever since.
Equally revealing of a society’s operative values (as opposed to its ideology) is another commonly used statistic, the so-called “Poverty Index” (designated HP-2) developed by the OECD and covering 19 of its member countries. It reflects the percentage of a nation’s population that is below one-half of its median income. Sweden, no surprise, has the lowest poverty level (6.3), and the U.S. is third from the highest at (15.4), ahead only of Ireland and Italy.
It is often noted that the Gini index and Poverty Index don’t tell the whole story. They don’t reflect the distribution of wealth as opposed to income in a society and they exclude any non-monetary benefits like free child care, free health care, or free education. But if we include such things in the picture, the U.S. comes off even worse, because our distribution of wealth is even more skewed and our social welfare programs are more niggardly than most of the leading OECD countries.
In short, we need to stop living in the past and get real about what has happened to our country in the past 30 years.
There are various ways of calculating this statistic, but the most popular method involves a comparison between the top and bottom 10 percent of the population. The result is a single index number ranging somewhere between zero (in a perfectly egalitarian, Marxian paradise) and 100 (meaning that the top X percent receives all of the income).
Needless to say, all known societies are somewhere in between, but the comparisons among them are highly revealing. Let’s look at some examples (I will be using the CIA’s World Factbook calculations for 2005 and 2007.)
Among the 30 odd members of the Organization for Economic Cooperation and Development (OECD), Sweden has the lowest (most egalitarian) Gini index number (23). Norway is close (25), followed by Germany (27), the Netherlands (30.9) and Canada (32.1). At the other end of the distribution, we find countries like China (41.5), Mexico (48.2) and, yes, the United States (46.8). Equally revealing, I think, are some of the historical trends. Some countries have become more egalitarian over time – like France, Norway, Canada and Mexico – while others have trended in the opposite direction, notably China, Brazil and, yes, the U.S. According to U.S. Census Bureau estimates, in 1947 our Gini index number was 37.6. In 1980, at the outset of Ronald Reagan’s “morning in America” presidency, it had increased to 40.3, and it has been increasing steadily ever since.
Equally revealing of a society’s operative values (as opposed to its ideology) is another commonly used statistic, the so-called “Poverty Index” (designated HP-2) developed by the OECD and covering 19 of its member countries. It reflects the percentage of a nation’s population that is below one-half of its median income. Sweden, no surprise, has the lowest poverty level (6.3), and the U.S. is third from the highest at (15.4), ahead only of Ireland and Italy.
It is often noted that the Gini index and Poverty Index don’t tell the whole story. They don’t reflect the distribution of wealth as opposed to income in a society and they exclude any non-monetary benefits like free child care, free health care, or free education. But if we include such things in the picture, the U.S. comes off even worse, because our distribution of wealth is even more skewed and our social welfare programs are more niggardly than most of the leading OECD countries.
In short, we need to stop living in the past and get real about what has happened to our country in the past 30 years.
Tuesday, February 15, 2011
Fairness Quiz (2)
New York State’s chief judge, Jonathan Lippman, has urged his state’s judicial board to bar judges from hearing cases where a lawyer or a party has contributed more than $2,500 to the judge’s election campaign within the past two years. Is that fair?
Fairness Quiz (1)
This is the first of a continuing series of opportunities for readers to judge for themselves whether or not something that caught my eye is fair, or not. Here’s one that surprised me.
Back in 1872, in the interest of encouraging the exploitation of our then “wild west,” Congress enacted a law that allowed prospectors looking for minerals to stake claims on public lands in the West at will, and declared that they would not have to pay any royalties on any “hard rock” discoveries – gold, copper, even uranium! It was all free.
By contrast, oil, gas and coal discoveries on federal lands require the operators to pay a royalty amounting to 12.5 percent of their gross income. Needless to say, our energy companies are especially exercised about the fact that the nuclear energy industry gets a huge tax subsidy.
Is this fair? What do you think?
Back in 1872, in the interest of encouraging the exploitation of our then “wild west,” Congress enacted a law that allowed prospectors looking for minerals to stake claims on public lands in the West at will, and declared that they would not have to pay any royalties on any “hard rock” discoveries – gold, copper, even uranium! It was all free.
By contrast, oil, gas and coal discoveries on federal lands require the operators to pay a royalty amounting to 12.5 percent of their gross income. Needless to say, our energy companies are especially exercised about the fact that the nuclear energy industry gets a huge tax subsidy.
Is this fair? What do you think?
Monday, February 14, 2011
A Tale of Two Cities
The mythology that befogs the truth about former president Ronald Reagan reached a new apogee recently as some of us celebrated his 100th birthday. I, on the other hand, grieved for what we have lost as a nation and how Reagan was an instigator and champion for this devolution. Indeed, he continues to inspire the dark forces that are at work in our politics. Strong words, I know. So let me explain.
One of the greatest achievements of the New Deal and World War Two era was a new public philosophy (call it liberalism if you need a label) that rejected the robber baron and the social Darwinist model of capitalism. In place of a winner-take-all “free market” paradigm that had resulted in vast extremes of wealth and poverty in this country (with brutal sweatshop working conditions and public health statistics that were shocking), New Deal liberals advanced the idea that we are one, interdependent nation -- a “collective survival enterprise.” We have a mutual obligation to assure that all of our basic needs are satisfied and that everyone should be able to enjoy freedom from want and fear (as President Roosevelt put it in his famous “Four Freedoms” speech).
Moreover, government at its best has an important role to play in achieving this objective. As Abraham Lincoln put it, “Government should do what the people cannot do for themselves or cannot do so well.” FDR, in a radio “fireside chat” added: “One of the duties of the State is that of caring for those of its citizens who find themselves victims of such adverse circumstances as makes them unable to obtain even the necessities of mere existence without the aid of others. That responsibility is recognized by every civilized nation...”
The embodiment of this vision was what came to be known as the welfare state – an array of agencies and programs that facilitated and subsidized a range of services that benefitted especially the disadvantaged in our society – public health, public housing, public education, mass transit, retirement pensions (Social Security), and much more. In addition, there was a structure of strong regulations covering such important public concerns as food safety, workplace safety, the financial industry and, eventually, even the then all-powerful automobile industry. In those days too, the tax burden was more equitably distributed between the rich and the middle-class, and the disparities in income were far less. By and large, government in that era was relatively honest and efficient, though there were also some regulatory excesses and barriers that inhibited the marketplace. Excessive airline regulation is the best example.
Ronald Reagan led the charge in the frontal assault on this more egalitarian and fair-minded society. Government, he famously proclaimed, was the problem, not the solution, and he made it a self-fulfilling prophesy by bringing into his administration a collection of cronies, incompetents and downright corrupt officials who had no qualms about using government for their own ends, or those of the industries they had come from. There were numerous government scandals during the Reagan years. As a report from The Center for American Progress recently noted, the policies Reagan pursued “decimated the middle class, ignored pressing social crises [he muzzled any government effort to deal with the AIDS crisis, for example] and stood by as tyranny fermented abroad.” He also spread the myth, a pure fabrication, that our welfare system was riddled with “welfare queens” riding around in Cadillacs.
Contrary to the mythology about Reagan, he raised taxes no less than 11 times, but the burden of these increases fell much more heavily on the middle class. The bottom 40 percent of taxpayers paid significantly more taxes in 1988 than in 1980. Meanwhile, during the Reagan years, per capita income for the bottom 90 percent among us fell by .3 percent, while income for the top 1 percent increased by an astounding 55 percent. Meanwhile, the Federal deficit tripled, with much of it going to fund a defense build up that enriched various defense industries.
Reagan also engaged in strike breaking and union busting, most notably with the air traffic controllers strike. Then there was the ideologically-driven deregulation of the savings and loan industry in the 1980s, which resulted in a huge government bailout of a quickly corrupted banking sector -- a preview of the great financial meltdown of 2008.
Ronald Reagan liked to promote the idea that America was a “shining city on a hill.” In fact, as others have noted, the Reagan years initiated what has become a “tale of two cities.”
One of the greatest achievements of the New Deal and World War Two era was a new public philosophy (call it liberalism if you need a label) that rejected the robber baron and the social Darwinist model of capitalism. In place of a winner-take-all “free market” paradigm that had resulted in vast extremes of wealth and poverty in this country (with brutal sweatshop working conditions and public health statistics that were shocking), New Deal liberals advanced the idea that we are one, interdependent nation -- a “collective survival enterprise.” We have a mutual obligation to assure that all of our basic needs are satisfied and that everyone should be able to enjoy freedom from want and fear (as President Roosevelt put it in his famous “Four Freedoms” speech).
Moreover, government at its best has an important role to play in achieving this objective. As Abraham Lincoln put it, “Government should do what the people cannot do for themselves or cannot do so well.” FDR, in a radio “fireside chat” added: “One of the duties of the State is that of caring for those of its citizens who find themselves victims of such adverse circumstances as makes them unable to obtain even the necessities of mere existence without the aid of others. That responsibility is recognized by every civilized nation...”
The embodiment of this vision was what came to be known as the welfare state – an array of agencies and programs that facilitated and subsidized a range of services that benefitted especially the disadvantaged in our society – public health, public housing, public education, mass transit, retirement pensions (Social Security), and much more. In addition, there was a structure of strong regulations covering such important public concerns as food safety, workplace safety, the financial industry and, eventually, even the then all-powerful automobile industry. In those days too, the tax burden was more equitably distributed between the rich and the middle-class, and the disparities in income were far less. By and large, government in that era was relatively honest and efficient, though there were also some regulatory excesses and barriers that inhibited the marketplace. Excessive airline regulation is the best example.
Ronald Reagan led the charge in the frontal assault on this more egalitarian and fair-minded society. Government, he famously proclaimed, was the problem, not the solution, and he made it a self-fulfilling prophesy by bringing into his administration a collection of cronies, incompetents and downright corrupt officials who had no qualms about using government for their own ends, or those of the industries they had come from. There were numerous government scandals during the Reagan years. As a report from The Center for American Progress recently noted, the policies Reagan pursued “decimated the middle class, ignored pressing social crises [he muzzled any government effort to deal with the AIDS crisis, for example] and stood by as tyranny fermented abroad.” He also spread the myth, a pure fabrication, that our welfare system was riddled with “welfare queens” riding around in Cadillacs.
Contrary to the mythology about Reagan, he raised taxes no less than 11 times, but the burden of these increases fell much more heavily on the middle class. The bottom 40 percent of taxpayers paid significantly more taxes in 1988 than in 1980. Meanwhile, during the Reagan years, per capita income for the bottom 90 percent among us fell by .3 percent, while income for the top 1 percent increased by an astounding 55 percent. Meanwhile, the Federal deficit tripled, with much of it going to fund a defense build up that enriched various defense industries.
Reagan also engaged in strike breaking and union busting, most notably with the air traffic controllers strike. Then there was the ideologically-driven deregulation of the savings and loan industry in the 1980s, which resulted in a huge government bailout of a quickly corrupted banking sector -- a preview of the great financial meltdown of 2008.
Ronald Reagan liked to promote the idea that America was a “shining city on a hill.” In fact, as others have noted, the Reagan years initiated what has become a “tale of two cities.”
Sunday, February 13, 2011
Fannie, Freddie, and Fairness
After the collapse of the housing bubble and a $135 billion taxpayer bailout (so far) of the two government-sponsored (and backed) mortgage lending giants with the disarmingly cute names Fannie Mae and Freddie Mac, there is now a move by the Obama administration to get the government out of the mortgage lending business. Wait a minute.
On the plus side of the argument for making this change, Fannie and Freddie fueled the housing bubble with what amounted to government subsidies for banks and other lenders, and it exposed the taxpayers to huge risks. We and our grandchildren will be picking up the tab for a lot of bad sub-prime mortgages. It has also been pointed out that many low income people would be better off renting -- if low-cost, quality rental housing were available. More of their income could be spent on the other necessities of life. In any case, we should leave mortgage lending to the private sector (like the cancerous Countrywide???).
On the negative side, the long term appreciation in housing prices, coupled with tax deductions for interest payments and property taxes, has enabled many middle-class Americans to build retirement nest eggs for themselves. Homeowners have used their homes as a form of savings. If Fannie and Freddie now withdraw from backing mortgages, it is predicted that interest rates will rise sharply and the 30-year fixed mortgage will become a dinosaur. Mortgage security will no longer exist. So only the affluent will be able to benefit from the appreciation potential and tax advantages of homeownership in the future.
The other objection is that there is a huge deficit of good, low-cost rental housing in this country. Among other things, this is one reason why our homeless population has been steadily increasing. Basic economic theory teaches that an increase in the demand for low-cost rental housing without an increase in the supply (builders shy away from such unprofitable ventures) will result in rent increases and even rent gouging. So if we act as a nation to put affordable homes out of reach for most low-income Americans without providing a viable alternative (affordable rentals), we will be squeezing the poor from both ends.
Is this the kind of country we want to live in?
On the plus side of the argument for making this change, Fannie and Freddie fueled the housing bubble with what amounted to government subsidies for banks and other lenders, and it exposed the taxpayers to huge risks. We and our grandchildren will be picking up the tab for a lot of bad sub-prime mortgages. It has also been pointed out that many low income people would be better off renting -- if low-cost, quality rental housing were available. More of their income could be spent on the other necessities of life. In any case, we should leave mortgage lending to the private sector (like the cancerous Countrywide???).
On the negative side, the long term appreciation in housing prices, coupled with tax deductions for interest payments and property taxes, has enabled many middle-class Americans to build retirement nest eggs for themselves. Homeowners have used their homes as a form of savings. If Fannie and Freddie now withdraw from backing mortgages, it is predicted that interest rates will rise sharply and the 30-year fixed mortgage will become a dinosaur. Mortgage security will no longer exist. So only the affluent will be able to benefit from the appreciation potential and tax advantages of homeownership in the future.
The other objection is that there is a huge deficit of good, low-cost rental housing in this country. Among other things, this is one reason why our homeless population has been steadily increasing. Basic economic theory teaches that an increase in the demand for low-cost rental housing without an increase in the supply (builders shy away from such unprofitable ventures) will result in rent increases and even rent gouging. So if we act as a nation to put affordable homes out of reach for most low-income Americans without providing a viable alternative (affordable rentals), we will be squeezing the poor from both ends.
Is this the kind of country we want to live in?
Saturday, February 12, 2011
Egyptology (2)
After some early bloodshed, Egypt’s ultimately peaceful revolution (terms like “historic,” “cosmic,” “monumental,” and “game-changing” have been used to describe it) has deep lessons to teach our own besotted and increasingly corrupt country.
One is that there are limits to what the people will tolerate. To use some game theory terminology, when the social contract becomes a zero-sum game that benefits mainly the rich and powerful few at the top of the (economic) pyramid, the masses will “defect” – one way or another. And Egypt’s way is far preferable to, say, the Russian or Chinese revolutions in the twentieth century.
The other lesson of the Egyptian revolution is that writing a new social contract with any chance of enduring will require some major changes in the distribution of wealth and power in that society. This part of the revolution has only just begun and the outcome remains uncertain.
One is that there are limits to what the people will tolerate. To use some game theory terminology, when the social contract becomes a zero-sum game that benefits mainly the rich and powerful few at the top of the (economic) pyramid, the masses will “defect” – one way or another. And Egypt’s way is far preferable to, say, the Russian or Chinese revolutions in the twentieth century.
The other lesson of the Egyptian revolution is that writing a new social contract with any chance of enduring will require some major changes in the distribution of wealth and power in that society. This part of the revolution has only just begun and the outcome remains uncertain.
Friday, February 11, 2011
Some Sorry Statistics
Our professional optimists do not like us to see the “dark-side” statistics. But for those of us who can stomach the truth, here are a few bitter morsels:
Between 2008 and 2010, the percentage of long term unemployed (more than 27 weeks) has increased from 18.8 to 41.9 percent (nearly half). Between 2007 and 2009, the number of people officially in poverty increased from 37.3 million to 43.6 million (and that’s surely an understatement). Food stamp purchases during this period increased in key states by 29-58 percent. Home foreclosures increased between 2008 and 2010 from 1.19 to 2.09 million. Meanwhile, book sales decreased from 25 to 23.9 billion and fire arms and ammunition sales increased from 279 million to 453 million.
Now the Republicans in Congress want to cut $100 billion from “discretionary” spending during the next seven months – just because they said they would! They would cut food stamps, Medicaid, and jobs in programs like Americorps. This despite the budgetary blood-baths going on in most of our states and in the wake of that “deal” in Washington to preserve tax cuts for the rich at a time when corporate profits are at an all time high and executive compensation is keeping pace. Just look at the stock market!
I wonder when somebody will connect the stats.
Between 2008 and 2010, the percentage of long term unemployed (more than 27 weeks) has increased from 18.8 to 41.9 percent (nearly half). Between 2007 and 2009, the number of people officially in poverty increased from 37.3 million to 43.6 million (and that’s surely an understatement). Food stamp purchases during this period increased in key states by 29-58 percent. Home foreclosures increased between 2008 and 2010 from 1.19 to 2.09 million. Meanwhile, book sales decreased from 25 to 23.9 billion and fire arms and ammunition sales increased from 279 million to 453 million.
Now the Republicans in Congress want to cut $100 billion from “discretionary” spending during the next seven months – just because they said they would! They would cut food stamps, Medicaid, and jobs in programs like Americorps. This despite the budgetary blood-baths going on in most of our states and in the wake of that “deal” in Washington to preserve tax cuts for the rich at a time when corporate profits are at an all time high and executive compensation is keeping pace. Just look at the stock market!
I wonder when somebody will connect the stats.
Wednesday, February 9, 2011
Egyptology
Usually the term refers to the study of ancient Eygpt, but there is a lesson for us in what has been happening in “modern” Egypt, if that word can be used to describe an entrenched oligarchy.
Though there are obvious and important differences between our two countries, we share with Egypt a tremendous concentration of wealth and income (our GINI index, measuring the gap between the rich and the poor, is even slightly higher). A major underlying factor in the Egyptian uprising was the fact that the vast wealth at the top of their economic pyramid is surrounded by a vast desert of poverty and hunger (sorry about that metaphor).
The implicit social contract that binds together any society is at risk of breaking down if the elite who have the wealth and power refuse to mitigate this kind of suffering. Then, as Plato warned, it is no longer one society. It is more like two adversaries in a zero-sum, conflict relationship.
We do not, of course, have the Egyptian kind of political suppression (yet) or the degree political isolation/insulation at the top that exists in Egypt. But the virulent, angry reaction that we witnessed in our 2010 election – fueled by a right wing propaganda machine that has been built and paid for by some of the wealthiest people among us -- is very ominous. And so is the recent data showing that our major corporations now derive more than half their income and profits from overseas. (Of course, most of their production is also overseas these days.) And now a Republican assault on what is left of the welfare state is just getting underway. Where it could end is in the streets.
Though there are obvious and important differences between our two countries, we share with Egypt a tremendous concentration of wealth and income (our GINI index, measuring the gap between the rich and the poor, is even slightly higher). A major underlying factor in the Egyptian uprising was the fact that the vast wealth at the top of their economic pyramid is surrounded by a vast desert of poverty and hunger (sorry about that metaphor).
The implicit social contract that binds together any society is at risk of breaking down if the elite who have the wealth and power refuse to mitigate this kind of suffering. Then, as Plato warned, it is no longer one society. It is more like two adversaries in a zero-sum, conflict relationship.
We do not, of course, have the Egyptian kind of political suppression (yet) or the degree political isolation/insulation at the top that exists in Egypt. But the virulent, angry reaction that we witnessed in our 2010 election – fueled by a right wing propaganda machine that has been built and paid for by some of the wealthiest people among us -- is very ominous. And so is the recent data showing that our major corporations now derive more than half their income and profits from overseas. (Of course, most of their production is also overseas these days.) And now a Republican assault on what is left of the welfare state is just getting underway. Where it could end is in the streets.
Sunday, February 6, 2011
The Tenth Wonder of the World
Recently the “Onion” designated the global gap between the rich and the poor to be the “ninth wonder of the world.” It’s not wonderful, of course. It’s awful. Actually, it would be easy to find a comparable number of “awfuls of the world.” – global warming, AIDS, America’s gun laws (that’s an oxymoron actually), the conditions that make senseless wars possible, and so on.
But if there’s a tenth wonder/awful of the world, it’s surely the violent upheavals that are caused by the ninth wonder/awful. Festering extremes of wealth and poverty have been associated with political revolutions ever since ancient times. Plato warned us about it in The Republic. So there’s nothing new in the idea. But we’re reminded of it with the current turmoil in Tunisia, Egypt and elsewhere. And it’s going to get worse. The United Nations in December reported that global food prices are at their highest levels in history, and you know what that means for the poor – hunger and starvation. When will we learn?
We like to think the United States is immune to the poverty-violence nexus. Actually, our “stats” are worse than in some of the other combustible countries. We actually have a GINI index (a global measure of the gap between the rich and the poor) that is greater (at 45) than in any other industrialized country, not to mention Tunisia (40), Egypt (34.4), Yemen (37.7), Algeria (35.5) and other political hotspots. We even edge out Iran (44.5).
Our official unemployment statistics would lead you to think that, nevertheless, it can’t happen here. Unemployment is now officially at 9 percent, a drop of .6 percent in a month, even though only 36,000 jobs were created. What? The official rate relies on the technicality that a person is not counted as unemployed if he/she does not report to an unemployment office each week. In fact, a broader measure of the discouraged job seekers and underemployed part-time workers indicates that some 17 percent of our workers (and their families) are not able to earn a living. Other studies confirm that there are about 25 million people in this country who are living in more or less extreme poverty. And, in case you haven’t noticed, food prices are going up here too.
Stay Tuned.
But if there’s a tenth wonder/awful of the world, it’s surely the violent upheavals that are caused by the ninth wonder/awful. Festering extremes of wealth and poverty have been associated with political revolutions ever since ancient times. Plato warned us about it in The Republic. So there’s nothing new in the idea. But we’re reminded of it with the current turmoil in Tunisia, Egypt and elsewhere. And it’s going to get worse. The United Nations in December reported that global food prices are at their highest levels in history, and you know what that means for the poor – hunger and starvation. When will we learn?
We like to think the United States is immune to the poverty-violence nexus. Actually, our “stats” are worse than in some of the other combustible countries. We actually have a GINI index (a global measure of the gap between the rich and the poor) that is greater (at 45) than in any other industrialized country, not to mention Tunisia (40), Egypt (34.4), Yemen (37.7), Algeria (35.5) and other political hotspots. We even edge out Iran (44.5).
Our official unemployment statistics would lead you to think that, nevertheless, it can’t happen here. Unemployment is now officially at 9 percent, a drop of .6 percent in a month, even though only 36,000 jobs were created. What? The official rate relies on the technicality that a person is not counted as unemployed if he/she does not report to an unemployment office each week. In fact, a broader measure of the discouraged job seekers and underemployed part-time workers indicates that some 17 percent of our workers (and their families) are not able to earn a living. Other studies confirm that there are about 25 million people in this country who are living in more or less extreme poverty. And, in case you haven’t noticed, food prices are going up here too.
Stay Tuned.
Subscribe to:
Posts (Atom)
