Who’s responsible for the boom (and the bust)?

What if one of the shibboleths of our time is wrong? For years I’ve read that incomes have declined for everyone not in the top one percent since the late seventies. But a new study says that median household income increased for everyone under Reagan and Clinton:

Robert J Shapiro, a former economic adviser to Bill Clinton who now runs the Sonecon consultancy in Washington, grabbed the opportunity to look at the raw census data when the US statistical office published it a few years ago.

He tracked the median incomes of average households as they travelled through the decades, checking on the progress of men versus women, Hispanic people versus black and white people, college graduates and different age groups. The report presents us with a more nuanced picture of the workforce and how it has fared.

He found that the 1980s boom, which gained traction in the middle of the decade, boosted the wages of all but the oldest group of workers. So large, steady income gains characterised the average household whether they were headed by men or women, or by people with high school diplomas or college degrees, whatever their ethnicity.

As Shapiro said: “This evidence contradicts the narrative told by those who track the value of aggregate income from the 1970s to present the claim that most Americans have made little progress for decades.”

The momentum dissipated in the first Bush presidency between 1989 and 1993 and accelerated again in the Clinton years before running out of steam in the early 2000s.

Where we find consensus is, where else, the George W. Bush administration’s policies of tax and interest rate deductions.

The article errs in placing Donald Trump and Bernie Sanders in a binary. Trump has no policies. Insofar as he does, the record puts him closer to Sanders than to any GOP candidate. Furthermore, under Reagan the non-rich saw more money drain after Social Security and so-called sin taxes. Clinton’s mild palliatives in 1993 were Reaganism with a Democratic face.

‘No evidence that raising the minimum wage costs jobs’

Because HRC wont Answer Questions, does this mean reporters can ignore policy statements? Her economic speech at the beginning of the week had good parts and moments reminiscent of her husband’s sprinkling of crumbs to a leftist base that was suspicious of him since spring ’92. Paul Krugman looks at the canard regarding the hazard of raising the minimum wage:

Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed using data from many episodes. There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.

How can this be? There are several answers, but the most important is probably that the market for labor isn’t like the market for, say, wheat, because workers are people. And because they’re people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn’t cost jobs after all.

The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we’ve learned from minimum-wage studies seriously, you realize that they’re not relevant just to the lowest-paid workers.

Yet this canard has totemic power for the Beltway class. Like debt reduction and Simpson-Bowles, it’s a sign of intellectual seriousness if a politician commits to it.

Fairness, etc

“Republicans say they’ll get you as far as your employer’s door, while Democrats want to walk inside with you” is the fairest thing any liberal’s written about a Republican since Eisenhower died, and Paul Waldman‘s dissection of the details in the president’s executive decision to raise the income necessary to quality for overtime hours is admirably straightforward:

As for this measure, we know exactly what employers will say: This will cost us money, which means fewer jobs. We know that’s what they will say, because that’s what they say about every marginal improvement in working conditions, benefits or pay. And in the short term, they’re right: It will cost them some money.

But let’s turn it around. What if employers said, “We could save money by removing the employee bathrooms and just telling our workers to wear Depends to the job. And that would mean we’d be able to hire more people.” Would we respond, “Well, if it would save you money and produce a few more jobs, then that sounds great”? Of course not. The short-term cost to employers of a regulation is certainly something to consider, but it’s not the only thing to consider.

The change to overtime regulations isn’t some kind of dramatic transformation. Like increasing the minimum wage, it’s nothing more than taking an existing rule and updating it for inflation. But it’s built on the assumption that the government should come into the workplace and make sure that what happens there is fair. Republicans don’t believe that’s government’s job.

And it’s a can’t-lose policy if a president tries to take it away in 2017.

Poverty ‘as a matter of values’

FAQ3-Fig2-2012

Paul Krugman:

Most notably, mortality among white women has increased sharply since the 1990s, with the rise surely concentrated among the poor and poorly educated; life expectancy among less educated whites has been falling at rates reminiscent of the collapse of life expectancy in post-Communist Russia.

And yes, these excess deaths are the result of inequality and lack of opportunity, even in those cases where their direct cause lies in self-destructive behavior. Overuse of prescription drugs, smoking, and obesity account for a lot of early deaths, but there’s a reason such behaviors are so widespread, and that reason has to do with an economy that leaves tens of millions behind.

It has been disheartening to see some commentators still writing as if poverty were simply a matter of values, as if the poor just mysteriously make bad choices and all would be well if they adopted middle-class values. Maybe, just maybe, that was a sustainable argument four decades ago, but at this point it should be obvious that middle-class values only flourish in an economy that offers middle-class jobs.

The great sociologist William Julius Wilson argued long ago that widely-decried social changes among blacks, like the decline of traditional families, were actually caused by the disappearance of well-paying jobs in inner cities. His argument contained an implicit prediction: if other racial groups were to face a similar loss of job opportunity, their behavior would change in similar ways.

I’m surprised Krugman would commit the oversight of ignoring what Ta-Nehisi Coates and others have mentioned: thanks to housing practices by the federal government — the only government entity that in other respects was the black man’s only ally — black citizens were driven and priced out of white enclaves.

But his larger point is chilling nonetheless: the whites who suffer most from diabetes, chronic obesity, cigarette addiction, and poor diet are the ones whom GOP state legislators and congressmen want to court.

‘We Danes accept that a burger is expensive’

Americans who have their hearts set on working for the Burger King Corporation should emigrate. In Denmark, the average fast food employee earns the equivalent of twenty dollars. Socialism!

In Denmark, fast-food workers are guaranteed benefits their American counterparts could only dream of. Under the industry’s collective agreement, there are five weeks’ paid vacation, paid maternity and paternity leave and a pension plan. Workers must be paid overtime for working after 6 p.m. and on Sundays.

Unlike most American fast-food workers, the Danes often get their work schedules four weeks in advance, and employees cannot be sent home early without pay just because business slows.

Actually, with the exception of the protracted vacation period these are conditions that American workers expected in the fifties and sixties as their due.

Meanwhile:

As a shift manager at a Burger King in Tampa, Fla., Anthony Moore earns $9 an hour, typically working 35 hours a week and taking home around $300 weekly.

“It’s very inadequate,” said Mr. Moore, 26, who supervises 10 workers. His rent is $600 a month, and he often falls behind on his lighting and water bills. A single father, he receives $164 a month in food stamps for his daughters, 5 and 2.

“Sometimes I ask, ‘Do I buy food or do I buy them clothes?’  ” Mr. Moore said. “If I made $20 an hour, I could actually live, instead of dreaming about living.”

Free enterprise for the poor, socialism for the rich, as Gore Vidal pointed out decades ago. To make any progress in the States requires first accepting the truth that indulgences are cheap because their manufacturers treat employees as commodities, then realizing that it needn’t be this way – what William Holden in Network sententiously called simple human decency. As a sane Dane points out, “We Danes accept that a burger is expensive, but we also know that working conditions and wages are decent when we eat that burger.”

“The mark of a sophisticated mind is to understand that some solutions work in some cases but not in others.”

Please study that graph. Forget South Korea and the Yoo Kay – Estonia has faster and cheaper broadband. Arguing that internet is as much a necessity as health care, David Atkins goes further: because health care and internet are necessities, they shouldn’t be subject to the vagaries of the free market:

Allowing a “free market” in such commodities isn’t free at all. It’s insane. It’s guaranteed to produce monopolies, high prices and terrible service. Which is exactly what we have in American healthcare and American internet: the world’s freest, and therefore worst and most expensive, markets in essential services…

…People who think “free markets” work in healthcare or the Internet are just as functionally stupid about economics as the most hardline Communist who thinks that the government should exercise full control of the toothpaste market. Most of the world understands by now that the second guy is a dangerous fool. But we’re at a weird point in history where the first guy undeservedly has more credibility. He shouldn’t–and he won’t for long.

I’d add “Social Security” to the list of essentials.

Boo-hoo alert: Zions expected “to take a big loss” thanks to Volcker Rule

Well, isn’t this precious?

When Zions Bank announced last month that it expected to take a big loss because of the Volcker Rule, it set off alarms all over Washington. Regulators scrambled to say they were considering changing the rule, but that was evidently not enough for some legislators.

Representative Jeb Hensarling, a Republican of Texas and chairman of the House Financial Services Committee, is expected to propose a bill that could open up a huge loophole in the rule. The proposed change could allow banks to create and own securities with many types of investments that are barred under the Volcker Rule, which is intended to prohibit speculative trading by banks while letting them both make markets for customers and hedge other investments.

[snip]

Zions, based in Salt Lake City, said that it expected to post the loss because it owned a large number of collateralized debt obligations that contained trust-preferred securities, known as TruPS, issued by other banks. The bank said it would have to post the loss, which it estimated at $387 million after taxes, because it would no longer be able use an accounting rule that allowed it to keep losses on those securities off its earnings statement, although they were disclosed in footnotes.

That accounting treatment depended on the bank being able to say it expected to retain the securities until they matured, something it would not be able to do if the Volcker Rule would require the sale of the securities, even if the sales could be delayed for several years.

Let’s remind ourselves what legislators like Barney Frank and Christopher Dodd intended the Volcker Rule to do: use accounting rules that allow banks to keep losses those securities off earnings statements (Robert Kaiser’s Act of Congress is an exemplary account of the hearings and final passage). Thanks to these accounting tricks and the collusion of Democratic Leadership Council types, we got the meltdown of 2007-2998, during which in part subprime mortgages served as collateral for these collaterized debt obligations, then certified as AAA by credit agencies and repackaged as more debt. It’s as if the last seven years haven’t happened.

“The poor are poor”

My eyes popped like Roger Rabbit’s yesterday upon reading Matthew Yglesias’ Slate column. David Atkins responds:

Which leads to the other great failure of rational actor theory in libertarian economics: the artificial separation of government and the governed in a democratic society. At least in representative democracies, the government exists as a mutual compact of citizens who choose to prevent the ills and excesses of the coldhearted markets by funding a protective system of checks and balances, social programs, guaranteed infrastructure, worker protections, product regulations, and a host of other goods and services that reduce the ability of the powerful to exploit the powerless on the open market. The choice to pay taxes to regulate meat companies so that consumers don’t have to do the research and take on the purchase risk of which companies’ hamburgers might be tainted, is just as equally valid a decision as the choice between going to Burger King or McDonalds.

What does all this have to do with Bangladesh? Everything. No Bangladeshi chooses to work in a dangerous factory at risk of implosion. They do so because they have little other choice, and because profit-driven companies are more than happy to exploit them while charging top dollar for the products they create so cheaply. Certainly, in theory that is a risk that Bangladesh and its citizens may take because if they instituted stronger wages and labor protections, the sociopathic corporations that hire desperate overseas labor would simply move on to the next country. That’s the rational actor theory at work.

But in theory we as citizens of the world can also choose to not allow those corporations to engage in recklessly criminal behavior anywhere in the world.

Reminds me of Henry Wilcox’s line in E.M. Forster’s great novel of class Howards End: “The poor are poor. One feels sorry for them but – well, there it is.”

“A paper tiger”

Rolling Stone published a new Matt Taibbi story on the bailouts. Among the discoveries about the Troubled Assets Relief Program and the way in which Treasury Secretary Hank Paulson and the incoming Obama administration sold the bill:

In the letters, [Larry] Summers laid out a five-point plan in which the bailout was pitched as a kind of giant populist program to help ordinary Americans. Obama, Summers vowed, would use the money to stimulate bank lending to put people back to work. He even went so far as to say that banks would be denied funding unless they agreed to “increase lending above baseline levels.” He promised that “tough and transparent conditions” would be imposed on bailout recipients, who would not be allowed to use bailout funds toward “enriching shareholders or executives.” As in the original TARP bill, he pledged that bailout money would be used to aid homeowners in foreclosure. And lastly, he promised that the bailouts would be temporary – with a “plan for exit of government intervention” implemented “as quickly as possible.”

The reassurances worked. Once again, TARP survived in Congress – and once again, the bailouts were greenlighted with the aid of Democrats who fell for the old “it’ll help ordinary people” sales pitch. “I feel like they’ve given me a lot of commitment on the housing front,” explained Sen. Mark Begich, a Democrat from Alaska.

But in the end, almost nothing Summers promised actually materialized. A small slice of TARP was earmarked for foreclosure relief, but the resultant aid programs for homeowners turned out to be riddled with problems, for the perfectly logical reason that none of the bailout’s architects gave a shit about them. They were drawn up practically overnight and rushed out the door for purely political reasons – to trick Congress into handing over tons of instant cash for Wall Street, with no strings attached. “Without those assurances, the level of opposition would have remained the same,” says Rep. Raúl Grijalva, a leading progressive who voted against TARP. The promise of housing aid, in particular, turned out to be a “paper tiger.

What now?

Digby:

A lot of people like to say that government is run purely for the rich. But that’s not entirely true. It’s not true in many European nations where austerity is being enacted, anyway. And most of the rich don’t actually benefit from a double-dip recession.

What seems more likely is that the current economic, ecological and political system is broken and unsustainable. Globalization creates downward pressure on labor, which pushes wealth upward and depresses wages, which forces policymakers to incentivize asset growth over wage growth while decreasing the cost of goods and increasing consumer debt. That in turn becomes impractical and creates wobbly, crash-prone economies even as middle-classes disappear. Birth rates decline due to lack of economic opportunity and insanely long periods of educational indenture for young people, which causes developed economies to turn to immigration for demographic balance, which in turn causes social unrest. Nation-states are powerless to stop multinational corporations from blackmailing them over “jobs” and buying their governments, and struggle to find coherent ways to deal non-state-actor crises such as international terrorism and climate change. Meanwhile, ecological and crises are abundant, guaranteeing a slowing of economic growth absent some significant paradigm shift.

No, I don’t know how to find an alternative or what the alternative would look like.

We’re doomed #134

Leftists, save your contempt of Rick Perry and Michelle Bachmann. Rightists, here’s your real Big Government target. It’s called the Securities and Exchange Commission, and according to Matt Taibbi, it’s been shredding documents on potential criminal investigations for years:

…the practice of destroying [matters under inquiry] had begun as early as 1993, and has resulted in at least 9,000 case files being destroyed. For all the thousands of tips that had come in to the SEC, and the thousands of interviews that had been conducted by the agency’s staff, all that remained were a few perfunctory lines for each case. The mountains of evidence gathered were no longer in existence.

The SEC also had the unfortunate habit of asking financial entities to investigate themselves; these same entities would later reward the diligence of SEC chairmen and their investigative units by offering them jobs.