Econ-Atrocity Blog

July 27, 2007

Announcing the launch of the U.S. Solidarity Economy Network (SEN-US)

We are excited to announce the launch of the U.S. Solidarity Economy Network. The decision to launch was taken at the end of a series of meetings that were held at the U.S. Social Forum. The time is ripe for this initiative, given the explosive growth of the solidarity economy and representative networks virtually everywhere else in the world. In the U.S., not only is there no such network to support existing solidarity economy practices and policies, but the term and framework is practically unknown.

What, then, is the solidarity economy?

· The Solidarity Economy offers an alternative economic framework to that of neoliberal globalization - one that is grounded in solidarity and cooperation, rather than the pursuit of narrow, individual self-interest.

· It promotes social and economic democracy, equity in all dimensions (e.g. race, class, gender…) and sustainability.

· It is pluralist and organic in its approach, allowing for different forms and strategies in different contexts, and is open to continual change driven from the bottom up whether in civil society or the marketplace.

What does a solidarity economy look like? Here are just a few examples:

· cooperatives – worker, producer, consumer, housing, financial
· local exchange systems, complementary currencies
· fair trade & solidarity finance
· social enterprises
· ‘high road’ locally owned businesses
· reclaim the commons movement
· social investment funds, worker controlled pension funds and credit unions
· land trusts
· co-housing, eco-villages
· consumer supported agriculture
· green technology and ecological production
· open source movement (e.g. Linux, wikipedia, YouTube)
· unpaid care labor & volunteer labor
· participatory budgeting
· collective kitchens in Latin America, tontines – collective health programs in Africa

· community-based services in France, social cooperatives in Italy

Why a solidarity economy network?

There are serious cracks in the dominant neoliberal economic model and there is a historic opening to create and push for a new framework for social and economic development. The solidarity economy builds on the grassroots innovations of people, moved by desperation, practicality, values, or vision, who are building economic alternatives to provide jobs, food, housing, social services, healthier communities and money, as well as advancing economic democracy and more just economic policies. Taken together, they offer stepping stones toward a new way of organizing our economy. Creating a network to foster a common sense of identity and purpose has been powerful in other countries. To take one example, in Canada, the social solidarity economy network has forged a comprehensive national policy framework and has leveraged $132 million in government funding for investment, capacity building, research and training.

What are the aims of the SEN?

We have yet to hammer out a mission statement, but here are some preliminary ideas:

· To develop a structure and vision that can promote a common identity and agenda among the currently isolated elements of the solidarity economy.

· To contribute to new theories of economic development informed by the dynamism and innovative practices within the solidarity economy.

· To raise the visibility, legitimacy and public support for solidarity economy practices,

· To link up with regional and international solidarity economy networks such as NANSE and RIPESS.

· To promote public policies and leverage resources for the support of the solidarity economy.

· To facilitate research on the benefits of the solidarity economy, best practices, opportunities for synergistic cooperation, and the development of training and technical support resources.

· To build the movement for transformative social and economic justice.

Next steps

The SEN Coordinating Committee is in the process of:

1) Mission statement and structure: we are developing a provisional mission statement and structure proposal which will be circulated for wider discussion.

2) Membership: We anticipate putting out an invitation to organizations and individuals to join in approximately a month’s time.

3) Development: We are exploring funding opportunities. The Center for Popular Economics will provide fiscal sponsorship as well as staffing, provisional upon funding in the start-up stage of the network formation.

4) Action plan and timeline: as we build a broad representative coordinating committee and membership we will prioritize our objectives and seek resources to achieve them.

5) Resource development: collect and publish a book of the presentations in the Economic Alternatives & the Social/Solidarity Economy track at the U.S. Social Forum. Develop a SEN-US website.

We hope that you find this initiative as exciting and inspiring as we do. Join us in building the Solidarity Economy Network. Spread the word, and sign on to the SEN listserve to keep up with developments. Send a message to: ssecaucus-subscribe@lists.riseup.net

On behalf of the SEN Coordinating Committee,

Emily Kawano, Center for Popular Economics
Phone: (413) 545-0743 e-mail:
SEN Coordinating Committee
Jessica Gordon-Nembhard, Grassroots Economic Organizing
Melissa Hoover, U.S. Federation of Worker Cooperatives
Emily Kawano, Center for Popular Economics
Julie Matthaei, Guramylay
Ethan Miller, Grassroots Economic Organizing (GEO)
Michael Menser, Amer. Fed. of Teachers, CUNY
Heather Schoonover, Institute for Agriculture and Trade Policy
Dan Swinney, Center for Labor and Community Research

I forgot to blog this previously, so sorry for the delay. Anyhow, our own Nancy Folbre had a letter to the editor in the July 16, 2007, issue of The Nation. It’s a response to Christopher Hayes’ “Hip Heterodoxy.” As usual, she’s witty and wise.

The letters section is for subscribers only, so I hope The Nation won’t mind my taking just a minor liberty to quote Nancy’s letter.

Let me add one flourish to Christopher Hayes’s thoughtful and endearing description of hip heterodox economists [”Hip Heterodoxy,” June 11] and introduce one complaint. A mainstream economist who had downed too many free drinks once asked me what my department was like. When I described it as heterodox he was confused, and informed me rather soberly that there were no homosexual departments. Of course, neither the orthodox nor the heterodox are orthosex. But sessions organized by the International Association for Feminist Economics have enlivened economics conferences for many years now. I’m disappointed by Hayes’s failure to mention this, or to interview even one feminist economist for his story. Does he consider us unhet or just unhip?

Following Nancy’s letter was another that pushes one of my pet peeve buttons:

Christopher Hayes deftly spells out confusion in the field of economics. He avoids, however, two critical questions. First, is the “dismal science” science at all? Many find it nothing more than fancy (if not fanciful) statistics, not much different from actuarial studies. Insurance underwriters recognize that a person with a life expectancy of 74.5 years may live to be 100 or die at 50. Yet neoclassical economists seem surprised when the real world doesn’t perform according to their theories. Witness the 2004 election and how many people voted against their own economic self-interest, violating neoclassical theories.

Second and more disturbing, Hayes uses the term “Nobel laureate” to identify various prominent economists. The so-called “Nobel Prize in Economics” is not one of the five awards stipulated in Alfred Nobel’s 1896 will. It arrived nearly seventy years later, first awarded in 1969. It was instituted by the Riksbank (Sweden’s central bank) “in memory of Alfred Nobel” as an effort to legitimize economics. Many physicists and mathematicians bristle at this award, claiming economics is not a science at all but uses mathematics to camouflage unproven and unprovable theories. Even Nobel’s great-great-grandson Peter criticizes the prize as “illegitimate–a PR coup.”

DONNA BOYLE, San Diego

I’m no great fan of neoclassical economics, and I probably agree with Boyle on most political issues. Even so, I feel I must point out that Boyle is off the mark in more ways than one. To begin with, neoclassical theories do not posit that people will or should vote in favor of politicians who will promote the voters’ economic self interest. Economic well-being is only one of many dimensions of life. So, even accepting neoclassical assumptions of rational persons making choices for their own benefit, such rational persons will have to weigh the pros and cons of all the aspects of their lives that they value–including such things as cultural values. If there are people who hate gay marriage more than they like a middle-class economic standard, then it is rational for them to vote for politicians who are homophobic and simultaneously pro-business/anti-union, etc. Neoclassical economic theory does not claim to be able to judge which desires and preferences will be stronger in any individual or group of people–in fact it is famously agnostic about preferences: one of the main complaints against it is that it ignores the ways that power structures, especially power structures built into the economy itself, can mold and shape the preferences of the people who then act rationally or otherwise in response. That is, in technospeak, neoclassical theory generally ignores the fact that economic preference formation is endogenous–internal to–the economy, and not something “given” from outside the realm of economics.

But that’s not my actual pet peeve. What gets under my skin is this non-issue of the Nobel Prize for Economics being somehow illegitimate. True: Alfred Nobel did not establish a prize in his name for economics. Also true: Alfred Nobel did not establish a prize in his name for biology. As I’ve read (though I’m sorry that I can’t recall where), his express reasoning was that he did not think biology was a real science. Biologists of his day were not in a position to do experiments in a convincing manner like the chemists and physicists that he did choose to honor. So does that mean that Alfred’s opinion of the status of sciences should be the final word for all time? Should administration of biology at universities be transferred to the Dean of Humanities? Does Boyle doubt the scientific bona fides of evolutionary theory any more than she does of economic theory? (Oh, and while neoclassicists do tend to win most of the economic Nobel prizes, not all the winners are beholden to that approach. Some, like Sen, are versed in alternative approaches including Marxian political economy. And folks like Stiglitz and Kahneman won the prize largely for their work in debunking the notion of rational actors in economic life.)

And the notion that the existence of a so-called Nobel Prize in Economics makes pretty much any difference in the world, beyond the lives of the individual winners and the reputations of the schools where they work, is hard to believe. Walk down the street and ask random people to name a single winner of the economics prize (or ANY Nobel prize for that matter). I’d be shocked if even 1% could do so. Survey Congress and the President and see what they answer: again, I’d bet that less than 20% of this elite, policy-making crowd could do so.

So the physicists and mathematicians bristle at the existence of a Nobel Prize in Economics? Big whoop. (And why would the math geeks care… they don’t have a Nobel Prize, so maybe it’s just jealousy.)

Much of economic policy deriving from economic theory has had as much or more negative results as positive, of that there’s no doubt. But Nobel’s prizes were supposed to be awarded “to those who, during the preceding year, shall have conferred the greatest benefit on mankind.” I think it’d be hard to claim that all the winners of physics or chemistry (or peace) Nobel prizes have actually conferred much real benefit on mankind. Take, for example, the 2006 award “for [the] discovery of the blackbody form and anisotropy of the cosmic microwave background radiation” which supports the Big Bang theory. Ummm, I think the Big Bang theory is really cool, and I like phyics (I grew up worshiping Isaac Asimov’s essays), but how exactly does mankind significantly benefit from the discovery of blackbody form and anisotropy of the cosmic microwave background radiation? If humanity never enjoyed the existence of a Big Bang theory, the quality of our lives would be changed hardly a bit. We’d still have poor people and rich people and powerless people and powerful people and racism and sexism and wars and malnutrition and loving neighbors and beautiful sunsets. Intellectual discoveries are wonderful and inspiring, but they rarely actually matter THAT much.

Oh, and one of Nobel’s descendants doesn’t like the economics prize? Since when do readers of The Nation endorse nepotism? What makes one great-great-grandson’s criticisms so impressive? According to the Nobel Prize website, many of Alfred Nobel’s family members have failed to endorse Alfred’s desires w/r/t the prizes. “His family opposed the establishment of the Nobel Prize, and the prize awarders he named refused to do what he had requested in his will. It was five years before the first Nobel Prize could be awarded in 1901.” Since Alfred isn’t here to answer directly, who’s to say that this particular great-great-grandson represents the true ideals of Alfred any better than others of Alfred’s progeny who think the Economics prize is a-ok?

My conclusion: the Nobel Prize in Economics is as legitimate as any other memorial prize and anyway doesn’t much matter regardless of its legitimacy. It just doesn’t do much of anything that really matters in the grand scheme of things.

FedSpending.org is a new website sponsored by effective OMB watchdog organization and Right-to-Know enforcer OMBWatch.org, which keeps an eye on the deregulatory manias of recent administrations. The new FedSpending.org website allows visitors to track Federal grants and contracts using various search criteria, e.g., location of the recipient (how about “Halliburton”), place of performance (try “Iraq”), sponsoring agency (”Defense”), and whether or not the contract was open to competitive bidding.

The Federal government was supposed to produce such a website itself, but Senator T. Stevens (Alaska) put a secret hold on the legislation. Although the hold was eventually withdrawn, the government still has not come up with the promisted user-friendly database.

Here’s the Halliburton search. Notice that you can refine the search by asking for more years and more detail.

Leave comments that describe your searches.  Ethanol?  Pharmaceuticals?

[See part one]
Jonathan Teller-Elsberg, CPE Staff Economist

It’s worth remembering that commons already exist, lots of them, in various places and parts of the world’s economies. Most often, however, they are informal arrangements—holdovers from before the rise of modern market capitalism. In general, commons are not recognized formally by governments as a type of property arrangement deserving protection, the way conventional private property is legally protected.

It is this lack of protection that enables the famous “tragedy of the commons.” Barnes argues that, contrary to the standard perception, commons aren’t undermined by internal tragedies—they are victims of infringement from the outside. Marx described the enclosure of common land into private land as “the primitive accumulation of capital”; today, Barnes is primarily concerned with the ability of corporations to horn in on remaining commons as they seek new resources to exploit for private gain. A recent example is with the digital TV broadcast spectrum, with an estimated value of $70 billion but which the U.S. government gave away for free in 1996 to media conglomerates, even though the airwaves are supposed to be the shared property of all Americans.

The main finding of Peter Lindert’s intriguing 2003 paper, “Why the welfare state looks like a free lunch” (a warm-up for his 2004 book Growing Public: Social Spending and Economic Growth since the Eighteenth Century is that generous social democratic welfare states, with a variety of universalist and means-tested safety net and family support programs, grow just as robustly as stingy laissez-faire states. Here’s the key summary from the abstract:

There is no clear net GDP cost of high tax-based social spending on GDP, despite a tradition of assuming that such costs are large.

The finding should obviously be plastered on bumper stickers, refrigerator magnets, and dorm-room walls and played continuously on a loudspeaker outside the Chamber of Commerce, Club for Growth, Council on Competitiveness, etc. The welfare state doesn’t just look like a free lunch, it is a free lunch, at least from the standpoint of national aggregates.

Class conflict may mean that it’s hard for us to order that free lunch in the U.S. anytime soon, but the barrier between us and the free lunch doesn’t come in the obvious way.

Robert H. Frank, co-author of The Winner-Take-All Society and, more recently The Economic Naturalist: In Search of Explanations for Everyday Enigmas (I haven’t read that one yet), among others… in general someone who’s worth paying attention to, now makes his film acting debut:

Yes, the Dude most definitely abides.

Just a quick note from Atlanta. It’s the end of the second day of the first US Social Forum. Due to travel ‘difficulties’,  I was not here yesterday. My spies on the ground tell me the march yesterday morning to kick off the Social Forum was 10 to 20 thousand people strong. Always hard to say, exactly, but a quick examination of the program (with over fifty workshops and panels going on at once for three days) and taking in the attendance at the panels I’ve attended, and just the sheer number of people on the streets of downtown Atlanta with their USSF ID badges, this is clearly the largest such gathering I’ve ever seen in the US. Thousands of people together to discuss and strategize a different US, something so necessary for the world as a whole, and no less so for us US’ers.

And the conversations happening go far beyond simple critiques of today’s neoliberal capitalism (too easy, anyway). They’re talking about concrete alternatives that are working on the ground now, and strategizing about scaling them up going forward. Of course there’s still a long way to go, but this forum represents a most welcome development: the coming together of disparate ’single-issue’ groups to hammer out common ground and devise strategies to move forward as one. I’m sorry you’re not here!

More specifics later, must sleep….

[Disclosure: I have been trying to sell my own house for ten months]

Kudos to Andrew Leonard at Salon for his insight into many economists’ delusions of perception (see No one wants to buy a home. Whose fault is it?)! He correctly points out that many so-called experts have a skewed view of when human psychology comes into play in their market decisions. So potential homebuyers are now fearful about what the housing market will do in the future (continue to crash, perhaps even burn? Or turn around?). No arguments there, just rueful agreement (in my case; see disclosure, above). But what about when gloom and doom forecasts are not heard far and wide? Well, it turns out people might be just as whacky during the boom as they are during the bust. Feel free to gasp now.

An important debate in the social health literature is whether more inequality causes worse health. At some later date I’ll post a bibliography, or maybe commenters can help. In any case the list of publications is long, the contributors illustrious, and the findings varied and at odds with each other. Some of the most important papers representing a range of findings include those by Deaton, Deaton and Lubotsky, Mellor and Milyo, Lynch, et al., Kawachi, Subramanian, et al., Navarro, et al., Wilkinson, et al., and Marmot, et al.

Note that the debate is about the effect of inequality, per se, on health. Everybody knows that being rich reduces mortality and being poor increases it. The relationship between income and health (mortality, infant mortality, life expectancy, morbidity) is so well known in the literature that it is simply known as “the gradient.” It obtains at the macro and micro levels in dozens of studies. For example, let me quote Angus Deaton, who is BTW an inequality-mortality skeptic, “Men in the United States with family incomes in the top 5 percent of the distribution in 1980 had about 25 percent longer to live than did those in the bottom 5 percent. Proportional increases in income are associated with equal proportional decreases in mortality throughout the income distribution” (Angus Deaton “Policy Implications Of The Gradient Of Health And Wealth”). But I digress.

There are three basic channels through which an association between inequality and health could occur. The first two are causal in that social inequality affects individual health.

1. Direct. Inequality creates stress, which is bad for health.
2. Indirect. Inequality disrupts the production of health-supporting public goods or causes the production of health-reducing public bads, which is bad for health.
3. Artifactual. More income improves the health of the poor more than it improves the health of the rich. (The health-income relationship is concave.) A more unequal society will have worse average health than a more equal society with the same mean income because the health gain to the rich from being much richer is not as great as the health loss to the poor from being much poorer. Note that individual income only affects individual health, but the distribution of income affects average health.

A fairly recent entry in the field is Leigh and Jencks, “Inequality and mortality: Long-run evidence from a panel of countries” (Journal of Health Economics 26 (2007) 1-24). Here is a link to a working paper version which is very similar to the published version. In a nutshell, the income share of the richest 10 percent of the population is the measure of inequality, and life expectancy at birth and infant mortality are the two main measures of health outcome.

The 14,500 doctors and 58,000 nurses of this health-care organization serve 7.6 million enrollees, delivering care that outperforms both commericial insurance and Medicare–let alone poor, underfunded Medicaid–on a host of indicators of quality of process and outcome. While Medicare costs increased from $5,000 to $6,800 (36 percent) per patient-year between 1996 and 2004, its costs stayed constant at $5,000 per patient-year. And the patients receiving this high-quality, moderate-cost care are disproportionately poor and disabled.

Is it Kaiser Permanente? Is it a new for-profit chain of health clinics? No, it’s the Veterans Health Administration (VHA).

As summer rolls around, there’s been a spike in interest in the American vacation deficit.

David Moberg, writing in the excellent progressive bi-weekly In These Times, surveys the field in “What Vacation Days?” Since we’re interested in policy, here’s the punch line,

Why do workers in other rich countries have more paid time off? Mainly because laws demand employers provide it. The European Union requires its members to set a minimum standard of four weeks paid vacation (covering part-time workers as well). Finland and France require six weeks paid vacation, plus additional paid holidays. Most countries require workers to take the time off and employers to give them vacation at convenient times. Some governments even require employers to pay bonuses so workers can afford to do more than sit at home on vacation. On top of that, unions in Europe and other rich industrialized countries—whose contracts cover up to 90 percent of the workforce—typically negotiate additional time off. Meanwhile, the standard workweek is slightly shorter in many European countries, and workers retire earlier with better public pensions.

For the heavy quantitative lifting, Moberg cites a survey of comparative vacation legislation, “No-Vacation Nation” recently published by CEPR (May 2007). The summary is here and the full report is here.

This report reviewed international vacation and holiday laws and found that the United States is the only advanced economy that does not guarantee its workers any paid vacation or holidays. As a result, 1 in 4 U.S. workers do not receive any paid vacation or paid holidays. The lack of paid vacation and paid holidays in the U.S. is particularly acute for lower-wage and part-time workers, and for employees of small businesses.

Jonathan Teller-Elsberg, CPE Staff Economist

A few weeks ago, CPE Staff Economist Jerry Friedman wrote an Econ-Atrocity reviewing Bill McKibben’s new book, Deep Economy. Though he says McKibben “has written a clear attack on much of what ails us,” Friedman nonetheless criticizes McKibben for approaching the environmental and social problems of the day from an individualist perspective. For all that McKibben wants to promote and revive “community,” he has the attitude (says Friedman) of a “personal Salvationist . . . [who thinks that] the enemy [is] ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.” What McKibben misunderstands or ignores, Friedman argues, is the power of social institutions to drive behavior, regardless of the desires and seemingly free choices of individuals.

I think that Friedman will find solace in Peter Barnes’ recent book, Capitalism 3.0: A Guide to Reclaiming the Commons, since Barnes’ approach is definitively institutional. The problem, according to Barnes, is that the structure of the economy and society leave too much power in the hands of corporate capitalism. Even if all the CEOs and boards of directors and politicians were replaced with kind-hearted souls like McKibben, we would still face pretty much the same issues of environmental decay, economic inequality, and other social ills—the logic of capitalism and the legal structure of private property rights force the leaders of corporations to do what they currently do. He learned this from personal experience as co-owner and manager of several business ventures, most famously Working Assets (a telephone and credit card company that donates one percent of gross revenues to progressive charitable organizations). “I’d tested the system for twenty years, pushing it toward multiple bottom lines [that consider social and environmental impacts in addition to profit concerns] as far as I possibly could. I’d dealt with executives and investors who truly cared about nature, employees, and communities. Yet in the end, I’d come to see that all these well-intentioned people, even as their numbers grew, couldn’t shake the larger system loose from its dominant bottom line of profit.” (Ironically, Bill McKibben is quoted on the front cover of Capitalism 3.0 helping to promote Barnes’ book.)

Berkeley economist Brad DeLong offers a qualified (”coming from a guy who is not a real health economist but has an undeserved reputation because he was good at translating the economese spoken by real health economists”) proposal for health care reform. Here are the highlights:

• 20% Deductible/Out of Pocket Cap
• Single-Payer for the Rest
• Sin Taxes [and public-health education, exhortation, etc.]
• Serious Research on Best Public-Health, Chronic-Disease, and Hospital Practices

Here’s what’s good, what’s bad, and what can be improved:What’s good?

• Single payer for the rest. Much of the current health care mess in the U.S. comes directly from the competitive private insurance market. Insurance companies reap rewards for avoiding sick patients and have little incentive to provide continuity of care (follow-up on patients with chronic illness, preventative care, etc.). Administrative costs and profits are also ridiculously high. Single payer, which means that the government or a quasi-governmental trust is the unique, universal insurer, is the obvious solution, a proven winner in one form or another in almost every other industrialized country.
• Serious research (and development). Medical and information technology could be applied much more effectively to monitor and to ameliorate chronic diseases and other health risks. We can learn more at the cutting edge, we can better disseminate and reward the adoption of demonstrated good practices, and we can help people monitor and improve their own health (while respecting their privacy).

What’s bad?

• 20% Deductible/Out of Pocket Cap. DeLong’s proposal would tax 20 percent of income for health care: 15 percentage-points worth would go into a personal health-spending account and 5 percentage-points worth would go into a health insurance pool. The phrase “for the rest” following single payer means that complete insurance would apply all health care problems in excess of 15 percent of income. At least there would be some means testing but there is little else to recommend this proposal. The impetus for high deductible is that patients should be encouraged to shop around and competitive pressures will contain costs. Otherwise, patients, or more likely their providers, face a moral hazard to overuse care. Some so-called cost sharing is compatible with single-payer, but here’s the problem. The 5 percentage points of income isn’t enough to provide insurance to people who need it. Health problems and the associated costs come in very concentrated bursts. According to the director of social scientific research at the Federal agency responsible for health research (AHRQ), “Nearly 30 percent of health care expenditures are accounted for by the top 1 percent of spenders, while more than half of all health care expenditure are accounted for by the top 5 percent of spenders.” Because health-care expenditure is about 16 percent of all income, the top 1 percent of spenders alone use up almost the entire 5-percent insurance pool (because 30 percent of 16 percent is 4.8 percent). There is essentially nothing left to pay for unexpected health care needs for the other 99 percent of the population beginning with the next sickest 4 percent. So we don’t need to debate the morality or excoriate the immorality of the “first out-of-pocket, and only then insurance” approach. Nor do we need to offer (perfectly reasonable albeit difficult to defend) opinions such as, “No one gets excess health care for fun.” Health care costs cannot be contained by widespread cost-sharing because of their fundamental distribution.

What can be improved?

• Sin Taxes [and public-health education, exhortation, etc.] Reinvigorating the public-health approach makes lots of sense. DeLong smartly suggests increasing the employment, skills, and portfolio of nurses, other primary-care providers, health educators, health-care paraprofessionals, nutritionists, et al. A lot of the public-health problem may come from the time bind that Americans face. When the health educator knocks at the door (see the proposal), will anyone be home? We are more likely to be commuting, alone, in a car, to a distant job with long hours. The proposed sin taxes should include unequal incomes and long hours. And public health should include a vacation.

In his column today, David Brooks furthered the argument that education is the key to reducing inequality, improving one’s lot, etc, etc. He says that

“when you look at the details, you find that most
inequality is caused by a rising education premium, by changes
in household and family structure, by the fact that the rich now
work longer hours than the less rich and by new salary structures
that are more tied to individual performance.”

He argues for a lot of swell policies that would make a difference in a
lot of people’s lives. But he (along with so many other intelligent people) overlooks a tragic flaw in this argument: while a better education will certainly benefit any given individual, that does not mean that better educations for everyone will benefit everyone. A little thought experiment might make this point clearer.

A recent article in Psychological Science describes experiments aimed at understanding the psychology of accepting, or not, social inequalities. (If the abstract seems a bit abstract, try this slightly more reader-friendly summary from Science.)

The gist: people who accept justifications for inequality experience less emotional stress when confronted by evidence of the inequality. The more a person believes that there are good reasons for inequality, the less emotional stress they’ll have. (Stress in the form of moral outrage, existential guilt, and support for changing things to help out the disadvantaged.) So acceptance looks to be a self-protection mechanism. Also, showing people stories, propaganda, what-have-you, that feeds ideas of justification (for example, “rags-to-riches” stories) increases their acceptance of the justifications, and so decreases their emotional reaction to evidence of inequality.

As the authors abstract, “system-justifying ideology appears to undercut the [urge to bring about] redistribution of social and economic resources by alleviating moral outrage.”

I guess this helps explain why people are likely to accept that “this is the best of all possible worlds.” Giving a rat’s ass that the world ain’t so great is hard to do. It’s stressful. That’s why those of us who think otherwise have got to help each other keep our spirits up. More potlucks!

By Gerald Friedman, CPE Staff Economist

At the time of the first Earth Day, April 22, 1970, the Environmental Movement straddled two approaches to addressing environmental problems, approaches rooted in two alternative theories. Senator Gaylord Nelson of Wisconsin proposed the first Earth Day to “force this issue onto the political agenda,” to promote changed government policy to protect the environment. But many of the 20 million Americans who took part in this first Earth Day were deeply suspicious of organized politics or state action. “Personal salvationists,” they blamed environmental troubles on our weaknesses as individuals. Instead of failed social policy, the enemy was ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.

Twenty seven years later, the Environmental Movement confronts the same division between personal salvation and political action, a division nicely illustrated by a new book, Bill McKibben’s Deep Economy. A prominent environmentalist, McKibben has written a clear attack on much of what ails us; but he misses the underlying cause of these ills and, therefore, his prescription for remedial action is necessarily off. In many ways, a pleasure to read, the book also left me so frustrated that I threatened to throw it against the wall.

Two weeks ago, after complaining to my daughter about how much I would dislike it, I bought Bill McKibben’s Deep Economy (New York, Henry Holt: 2007) from my local Amherst book store. Already familiar with his ideas from his various other writings (including The End of Nature; Staying Human in an Engineered Age; and various New Yorker articles), I suspected that his new book would be well written, an effective attack on much that ails us as a society, and would miss the point. It is this last that led me to threaten to throw the book against the wall in frustration. And that frustration led me to write this note. (Actually, it was my wife who wanted me to write this so that I would stop ranting to her.)

What could be wrong with a book that criticizes the Bush Administration, big oil, Cargill, Monsanto, and the Economics profession (among many many other villains)? Especially when the author has such good heroes: including farmers’ markets, urban gardens, organic farmers, Heifer International, and the Indian state of Kerala. Among economists, environmentalists like Herman Daly and Bob Costanza get most of the Kudos but a few, like Amartya Sen, make friendly cameo appearances. Individualism is bad; society is productive; and I agree that would all be better off, and the world a lot better off, if we listened to Bill McKibben.

The problem I have is that McKibben not only reads orthodox economists but believes them.

Scientific American is reporting on a an article in the journal Neuron that describes brain scanning experiments intended to see if poorer people react differently than richer people to opportunities to gain a little extra money.

The microeconomic law of diminishing marginal utility states that while accumulating a good—pretzels, pencils, nickels, whatever—each successive unit of that good will be less satisfying to acquire than the one before it. Finding a shiny quarter on the street is a real thrill. But, if you are carrying around a bag of coins, acquiring another one does not seem nearly as exciting. In fact, would you even bother to pick it up?

That hesitation is what researchers at the University of Cambridge in England were banking on when they designed a study to see if the haves catch on more slowly than the have-nots when it comes to reward-based learning. Reporting in the current issue of Neuron, the scientists reveal that when a small sum of money is on the line, poorer people learn quickly how to maximize their profits, leaving their wealthier counterparts in the dust.

By Hasan Tekguc

What are honeybees, the favorite economic textbook example of a positive externality, doing nowadays? The short answer is: they are vanishing in droves, in billions.

Let’s take a step back and see what economics textbooks tell us. In many economics textbooks and introductory classes honeybees are referred to as the perfect example of a positive externality. A positive externality is the benefit from economic activity that falls on a party ‘external’ to the activity. Economics textbooks and professors explain that when honeybees visit flower after flower to collect nectar, they help flowers to pollinate. However, honeybee keepers are not paid by orchard owners for honeybees’ services and hence the pollination service is underprovided. The market-based solution offered in textbooks is to expand the market to include the positive externalities; in plain language if the orchard owners start to pay the beekeepers for bees’ services, the beekeepers will keep more honeybees, more flowers will be pollinated, and the trees will bear more fruit.

What will happen? Maybe not much. What could happen? Something big.

Top Court: EPA Can Control Emissions

By MARK SHERMAN Associated Press Writer
© 2007 The Associated Press

WASHINGTON — The Supreme Court ordered the federal government on Monday to take a fresh look at regulating carbon dioxide emissions from cars, a rebuke to Bush administration policy on global warming.

In a 5-4 decision, the court said the Clean Air Act gives the Environmental Protection Agency the authority to regulate emissions of carbon dioxide and other greenhouse gases from cars.

Greenhouse gases are air pollutants under the landmark environmental law, Justice John Paul Stevens said in his majority opinion.

[cont’d]

And in quick response, words to the wise from the auto industry:

Automakers urge economy-wide approach to global warming
POSTED: 12:56 p.m. EDT, April 2, 2007

WASHINGTON (AP) — Automakers called for an economy-wide approach to global warming in reaction to a Supreme Court decision Monday that could give the government the authority to regulate the emissions of carbon dioxide and greenhouse gases from cars.

The Alliance of Automobile Manufacturers, an industry trade group representing General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Toyota Motor Corp. and five others, said in a statement that “there needs to be a national, federal, economy-wide approach to addressing greenhouse gases.”

Of course, don’t expect things to work out all rosy…. The auto industry plans to be the first among equals at the negotiating table:

Dave McCurdy, the alliance’s president and chief executive, said automakers would work with lawmakers and federal agencies to help develop a national approach.

[cont’d]

But even still, the idea is right. Cap and trade? A carbon tax? Good old fashioned rationing? Banning the worst offenders (as in, no new fossil fuel powered electricity plants, followed by a phase-out of existing plants; mandatory efficient building materials and techniques; minimal acceptable auto fuel efficiency; etc)? There are lots of options for economy wide approaches to dealing with carbon pollution, and no time like the present to start trying them out.

Having said that, what the Supreme Court has ruled looks to be restricted to auto emissions (thus the auto industry’s insistence on economy-wide action, so they aren’t made the only ones to deal with the greenhouse gas problem). This is based on

§202(a)(1) of the Clean Air Act, which requires that the EPA“shall by regulation prescribe . . . standards applicable to the emission of any air pollutant from any class . . . of new motor vehicles . . . which in [the EPA Administrator’s] judgment cause[s], or contrib-ute[s] to, air pollution . . . reasonably . . . anticipated to endangerpublic health or welfare,” 42 U. S. C. §7521(a)(1).

Become an expert: read the Court’s actual decision in “Massachusetts et al v. Environmental Protection Agency et al.” [pdf]

P.S.–Don’t confuse this decision with the other environmental decision also released today, “Environmental Defense v. Duke Energy Corp.” That one rules that the EPA should be more rigorous in enforcing the Clean Air Act when power companies alter existing plants to ensure that no more pollution is released than before the alteration.

This just came out a couple days ago. It even crossed the desk of Rush Limbaugh, who used it as an opportunity to recommend increasing taxes on those below the poverty line. Rush, egalitarian that he is, feels it is unfair for people with low-incomes to avoid sharing equally in the funding of the state. Har!

THE IMPACT OF STATE INCOME TAXES ON LOW-INCOME FAMILIES IN 2006
By Jason Levitis

Summary

Poor families in many states face substantial state income tax liability for the 2006 tax year. In 19 of the 42 states that levy income taxes, two-parent families of four with incomes below the federal poverty line are liable for income tax. In 15 of the 42 states, poor single-parent families of three pay income tax. And 29 of these states collect taxes from families of four with incomes just above the poverty line.

Some states levy income tax on working families in severe poverty. Six states — Alabama, Hawaii, Indiana, Michigan, Montana, and West Virginia — tax the income of two-parent families of four earning less than three-quarters of the poverty line such families. All of these states except Indiana also tax the income of one-parent families of three earning less than three-quarters of the poverty line.

In some states, families living in poverty face income tax bills of several hundred dollars. A two-parent family of four in Alabama with income at the poverty line owes $573 in income tax, while such a family in Hawaii owes $546, in Arkansas $427, and in West Virginia $406. Such amounts can make a big difference to a family struggling to escape poverty. Other states levying tax of more than $200 on families with poverty-level incomes include Indiana, Iowa, Michigan, Montana, New Jersey, and Oregon. In 2006, the federal poverty line for a family of four was $20,615, and the line for a family of three was $16,079.

States’ tax treatment of low-income families for 2006 has improved in some states since 2005 but gotten worse in others. Between 2005 and 2006, Oklahoma and Oregon reduced the income tax liability of poor families, Delaware entirely stopped taxing the incomes of poor families of three, and Virginia entirely stopped taxing the income of poor families of four. But four other states increased their taxes on poor families by 25 percent or more, and New Jersey began taxing poor families of four for the first time since 1998. The reason for these tax increases is that provisions designed to protect low-income families from taxation — including standard deductions, personal exemptions and low-income credits — were not increased to keep up with inflation. Overall, there was virtually no change this year in the number of states levying income taxes on families with incomes below the poverty line.

The outlook for the future is somewhat better. A number of states have recently enacted significant reforms that will reduce taxes on low-income families. Between 2007 and 2010, Alabama, Arkansas, Hawaii, Michigan, Oklahoma, Oregon, and West Virginia each will improve their income tax treatment of the poor. In Arkansas, Michigan, Oklahoma, and West Virginia, the changes will wipe out or dramatically reduce tax liability that now costs poor families hundreds of dollars. Overall, the number of states taxing poor families of four could decline from 19 to 16. And quite a few other states are currently considering similar measures.

Taxing the incomes of working-poor families runs counter to the efforts of policymakers across the political spectrum to help families work their way out of poverty. The federal government has exempted such families from the income tax since the mid-1980s, and a majority of states now do so as well.

Eliminating state income taxes on working families with poverty-level incomes gives a boost in take-home pay that helps offset higher child care and transportation costs that families incur as they strive to become economically self-sufficient. In other words, relieving state income taxes on poor families can make a meaningful contribution toward “making work pay.”

States seeking to reduce or eliminate income taxes on low-income families can choose from an array of mechanisms to do so. These mechanisms include state Earned Income Tax Credits (EITCs) and other low-income tax credits, no-tax floors, and personal exemptions and standard deductions that are adequate to shield poverty-level income from taxation. Some states go beyond exempting poor families from income tax by making their EITCs or other low-income credits refundable. These policies provide a substantial income supplement to families struggling to escape poverty, but they are relatively inexpensive to states, since these families have little income to tax.

Despite some progress, there remains much to do before state income taxes adequately protect and assist families working to escape poverty.

By Helen Scharber, CPE Staff Economist

On February 8, Representative Louise Slaughter (D-NY) introduced the Preservation of Antibiotics for Medical Treatment Act of 2007, a bill designed to limit the use of antibiotics in healthy farm animals. Though their surnames do not lend themselves as aptly to a bill about livestock, Senators Kennedy (D-MA) and Snowe (R-WA) introduced a nearly identical bill to the Senate the following week. Why are lawmakers suddenly so concerned with porcine penicillin? As Snowe explains, “The effectiveness of infectious disease fighting antibiotics continues to be compromised by their overuse for agricultural purposes.” In other words, the antibiotics we’re feeding our edible friends are speeding the development of drug-resistant super bacteria, a type of progress that’s bad for pigs and for people.

It’s extremely common for articles about different health issues to cite some statistic about the drain on the economy that the illness causes, both in terms of direct expenditures for healthcare to deal with it, as well as the indirect costs of missed work time. It was this quote in The Ecologist that got me thinking about this, “The indirect costs [of obesity in the UK] are estimated to be in the region of £2.5 billion per year, including costs to the NHS [National Health Service] and costs to industry through sickness and absence” and typing “economic cost disease” into Google’s Scholar search turns up a slew of examples from the bowels of academia figuring the same way.

The Washington Post reported a couple days ago on the dwindling and precarious situation among the big accounting firms. As the opening paragraph asks, “With only four major firms left in the business, are there too few to let any fail?” The article goes on to list numerous troubling and legally challenged activities by PricewaterhouseCoopers, Deloitte & Touche, KPMG, and Ernst & Young in recent years, all in the shadow of Arthur Anderson’s undoing as an enabler of Enron’s mishigas.

The CBC reports

Alberta carbon dioxide pipeline could cost $5B
Last Updated: Thursday, March 15, 2007 | 12:19 PM MT
CBC News

A plan to pipe carbon dioxide from Alberta’s oilsands and store it underground could cost as much as $5 billion, says Alberta’s environment minister.

The province wants to capture carbon dioxide and send it through a 400-kilometre pipeline. Intergovernmental Affairs Minister Guy Boutilier said earlier this month that the pipeline would cost $1.5 billion and the carbon dioxide would be used to help get more oil out of low-producing wells.

He was pushing for the federal government and industry to split the cost of the project.

But Environment Minister Rob Renner suggested Wednesday it could cost much more.

“The number of $1.5 billion has been floated,” Renner said. “I suspect that the number — all costs included — will be significantly higher than that.

“I’ve seen estimates as high as $5 billion by the time it has taken into account the cost to industry to implement the [carbon] capture facilities.”

[cont’d]

Wow. Just a thought here, and ignoring that the carbon dioxide would be sequestered (for how long and how securely?) in an effort to bring yet more fossil fuel to the surface so it can be burned and converted to carbon dioxide, most of which won’t be captured but will add to the greenhouse mix; so my thought is, just how much energy conservation technology could be implemented with $5 billion (even if it is Canadian dollars), or even the lower estimate of $1.5 billion? I’d definitely bet a dollar that it’d be enough to cancel out way more CO2 emissions than the pipeline would help sequester (and I repeat, for how long, and how securely?).

The latest (March 2007) newsletter from the Center for Rural Affairs has several good articles, mostly in response to the proposed Farm Bill and the President’s proposed federal budget now before Congress. [Note: once the next newsletter comes out, the link to this one will change and you’ll be able to find it through their newsletter archives.] And as usual, the “Corporate Farming Notes” are worth following. Some examples:

Ex-chair of the Fed, Alan Greenspan, was frequently criticized for throwing his weight around in favor of those whose economic position is based on owning financial capital, at the expense of the vast majority of the public. Congress loved everything about Greenspan and would have made him chair-for-life if they could, so it shouldn’t be terribly surprising that his replacement, Ben Bernanke, tends towards the same bias. Dean Baker paints a “hypothetical” scenario that would lead to just that conclusion. How else to explain why Bernanke would be so eager to smooth the rough waters of the financial markets? Aren’t they just natural expressions of the rational free-market system? To paraphrase Marilynne Robinson from one of her essays in Mother Country, if the markets are natural systems, like rivers, what obligation is there to flatten out the waterfalls and smooth over the rapids? The answer seems to be the obligations of class.

A sweet week for family policy in the print media. Don’t miss Ruth Rosen’s cover article on “The Care Crisis” in The Nation of March 12, 2007 OR the special report entitled “The Mother Load” in The American Prospect of March 2007, with contributions by Heather Boushey and Janet Gornick, among others. Both magazines insist that creative feminist family policy ideas should move to front and center-left of the Democratic party agenda.

First, a confession. I am a virgin blogger so I may not get the links–or the lingo–quite right. But here goes:

The fact that so much of what the “intelligence” community does is done in secret makes it a little hard to judge the worth of their efforts. But here are a few things to consider.

1) When they do accomplish things, it often turns out badly. Very, very badly.

2) When they don’t accomplish things, the bad results are avoided perhaps only by the grace of God (and the more cool-headed minds that stand between the U.S. intelligence community and whatever it is they are trying to accomplish). Case in point: intelligence on Iran’s nuclear programs turns out to be pretty much a bunch of junk.

Speaking of which, I liked Alexander Cockburn’s recent column on selling bridges to the New York Times. (Full column available to Nation subscribers only, but this intro is a nice taste.)

By Heidi Garrett-Peltier, CPE Staff Economist

You are what you eat. And according to Michael Pollan, author of The Omnivore’s Dilemma, that means we’re corn. Corn has now made its way into our diet in the form of fillers, sweeteners, oils, alcohols, pills, and breakfast cereals, not to mention of course the indirect path it takes through animal feed. Why should we care? Because cheap corn has been linked to obesity, and obesity will soon overtake tobacco as the leading cause of preventable death.

By Matthew Riddle, CPE Staff Economist

The Regional Greenhouse Gas Initiative, or RGGI, grabbed headlines in Massachusetts recently when Governor Deval Patrick signed onto it, committing Massachusetts to a cut in its emissions of greenhouse gasses from power plants, and reversing Mitt Romney’s decision to abandon the agreement. In addition to rejoining RGGI, Patrick also outlined some proposals for its implementation, which may prove to be even more significant than his decision to join.

This morning’s reports on French President Chirac’s statement that, according to the NYTimes,

“what is dangerous about this situation [Iran acquiring a nuclear bomb] is not the fact of having a nuclear bomb,” he said. “Having one or perhaps a second bomb a little later, well, that’s not very dangerous.

“But what is very dangerous is proliferation. This means that if Iran continues in the direction it has taken and totally masters nuclear-generated electricity, the danger does not lie in the bomb it will have, and which will be of no use to it.”

Mr. Chirac said it would be an act of self-destruction for Iran to use a nuclear weapon against another country.

“Where will it drop it, this bomb? On Israel?” Mr. Chirac asked. “It would not have gone 200 meters into the atmosphere before Tehran would be razed.”

There’s no doubt that this represents lame politics on Chirac’s part, since, if this is his true belief, he shouldn’t have been suggesting otherwise before now (or after, with his bungled attempts at retraction).

I don’t think that Tim Haab at Environmental Economics subscribes to the Econ-Atrocities, but by happy coincidence he’s written a blog post that would fit perfectly in the series. His topic is the Mexican government’s response to serious inflation in the cost of tortillas, which are a primary staple of the Mexican diet, and poor Mexicans (of which there are plenty) are getting hit by these price hikes like a punch to the gut. Should the Mexican government pursue a policy of price caps for tortialls? The “Theory of the Second Best” offers an interesting angle of analysis. I’ll let Tim explain it himself, but as a teaser here’s a bit of his conclusion:

If the price cap is a response to another inefficient policy, then the price cap may actually improve efficiency. The first best solution would be to remove the policies creating the inefficiently high corn prices. The second best solution might be to create a new policy to counteract the effects of bad policy. That’s the Theory of Second Best.

This all makes best sense as part of his full post, so go read it (it’s not long, so it won’t hurt).

By Jonathan Teller-Elsberg, CPE Staff Economist

With Al Gore on Oprah giving his “inconvenient” PowerPoint presentation, new reports of melting ice sheets and rising sea levels, and the release of the British government’s Stern Review, which is the latest major estimate of the economic costs of climate change, the issue of global warming is becoming a part of mainstream politics and kitchen-table conversations. Since the burning of fossil fuels (oil, natural gas, and coal) is the main source of human-caused warming, the need for alternative forms of energy is clear.

By Helen Scharber, CPE Staff Economist

When your child’s doctor gives you advice, you’re probably inclined to take it. And if 60,000 doctors gave you advice, ignoring it would be even more difficult to justify. Last month, the American Academy of Pediatrics (AAP) issued a policy statement advising us to limit advertising to children, citing its adverse effects on health. Yes, banning toy commercials might result in fewer headaches for parents (“Please, please, pleeeeeeease, can I have this new video game I just saw 10 commercials for????”), but the AAP is more concerned with other health issues, such as childhood obesity. Advertising in general – and to children specifically – has reached astonishingly high levels, and as a country, we’d be wise to take the doctors’ orders.

Any present or past President has got to be used to being scorned, so the hue and cry now erupting over Jimmy Carter’s new book on the Israeli-Palestinian misery can’t be terribly surprising for him. I haven’t yet had a chance to read the book and so am not in a position to endorse or reject or somewhere-in-the-middle it. Still, some of the reaction is so clearly based on attacking Carter himself, rather than the content of his book–indeed it seems to be attacking Carter instead of attacking his arguments–and that’s just plain wrong. An example.

By Helen Scharber, CPE Staff Economist
Dec. 20, 2006

Ahh, the holidays. So full of joy, laughter, good cheer… and contradictions. The holidays are all about spending time with loved ones. Or are they all about finding the perfect gift? They are a time of relaxation and spirituality. Or perhaps a time of stress and consumerism? According to a 2005 poll by the Center for a New American Dream, more than three in four Americans (78%) wished that holidays were less materialistic, yet shoppers around the country planned to spend an average of $907 on gifts this holiday season. Sixty percent of people polled anticipated spending less this year than last, but according to the National Retail Federation, holiday retail sales were forecasted to rise five percent to $457.4 billion. As Howard Dvorkin, founder of Consolidated Credit Counseling Services, Inc. (CCCS), observes, “It seems that consumers are trying to be more conservative with spending this year over last, but many of the best laid plans fall through when the pressures of advertisers and unrealistic holiday expectations hit a fever pitch of season overload.” The fast pace and high cost of the holidays can seem to be out of our control, but there are a number of good reasons to take the reindeer by the antlers and reign in holiday consumption.

By Gerald Friedman, CPE Staff Economist
Dec. 1, 2006

A recent article in the New York Times (October 25, 2006) entitled “Hospitals Try Free Basic Care for Uninsured” raises an intriguing possibility. The Times reports how some local governments and hospitals have found that by providing primary care, supportive services, and preventive care for the uninsured they can save money by avoiding higher costs when conditions worsen down the road. Following the experience of a diabetic patient at Seton, a Roman Catholic hospital network in Texas, the Times shows how preventive care reduced “costs for the hospital” by helping the woman avoid expensive emergency room visits. By improving her health, preventive care cut her medical bills nearly in half. “The money we save,” Dr. Melissa Smith, medical director of three Seton clinics, “money that is not hemorrhaging through the I.C.U., is money we can do so much more with to help her upfront.”

We could all hope that there will be enlightened insurers who will respond to these stories. The Times is certainly hoping to promote a free-market win-win where the poor will receive care that will help them stay healthy, and health insurers and providers will increase their profits by reducing total expenditures. But this worthy goal misses the fundamental flaw of for-profit health insurance: Capitalist businesses, including America’s health insurers, are not eleemosynary institutions. They do not set out to produce useful things. Instead, they seek to create profits; any social value or use is purely coincidental. In the specific case here, our capitalist health care industry is organized to produce profits; any quality health care that it provides is a desirable, but secondary, product.

Over at the Boston Review, Michael Piore and Andrew Schrank’s recent article (“Trading Up: An embryonic model for easing the human costs of free markets”) on labor in Latin America offers a spot of good news. They’ve been studying labor inspections throughout the region, from the Dominican Republic to Mexico to Brazil and Chile, and say they’ve found “an emergent model for reconciling market and social forces.”

The 2006 Election(s)
By John J. Fitzgerald

The 2006 Election cycle has come and gone. Just like the 2006 Hurricane season it has not performed exactly as predicted, but it has left some changes in its wake. We might actually have experienced several different elections rather than just one. A lot of decision-making got formalized on the 7th of November.

Here are some of the highlights:

For all that social sciences are able to figure out patterns of behavior, there’s one thing that guarantees a continuing need for old fashioned history analysis: the existence of totally unpredictable twists and turns in culture and politics.

Now I can’t say with any confidence that the recent fall from grace of Rev. Ted Haggard, until this past Thursday the president of the huge and hugely influential National Association of Evangelicals and leader of a megachurch in Colorado Springs, will be one of those surprisingly pivotal events. But there’s a distinct possibility that his outing as a repeat customer of male prostitution could lead to major changes in US policy and cultural attention towards global warming.

By Gerald Friedman, CPE Staff Economist

As I write this, it appears likely that after 12 years in the wilderness, the Democrats will capture a majority in the House of Representatives and will make substantial gains in the Senate. (My favorite objective source, http://www.electoral-vote.com/, gives the Democrats a 225-208 lead in the House and a gain of 4 Senate seats to move to 49-51 in the upper body.) After 6 years of almost uninterrupted one-party rule, and the worst government this country has endured since the 1850s, we can only rejoice at Democratic gains as, if nothing else, a sign of a return to sanity after the trauma of September 11, 2001. But, beyond this, what can we expect from the Democrats? Can we anticipate a reversal of Bushism, and a renewed push for social progress?

The following post is the text of a radio commentary I (Mike Meeropol) delivered over WAMC radio in early October.

Did you know that the US Congress has rejected efforts to punish, investigate and criminalize war profiteering?

Yes, that’s right. This past February, the House on a mostly party-line vote rejected an effort to forbid expenditures from going to any contractor, “…if the Defense contractor audit agency has determined that more than $100,000.000 of the contractor’s costs involving work in Iraq … were unreasonable.”[1]

Meanwhile, the Senate on an equally party-line vote, rejected an amendment to an appropriation bill “to prohibit profiteering and fraud relating to military action, relief and reconstruction…”[2]

What’s going on here?

Dear Readers — the following is an email message I sent to all fellow faculty at Western New England College where I teach. I am including it here based on an invitation I received to share it with all readers of this Blog. I am reproducing it here without editing.

Mike Meeropol (econ Prof, Western New England College, Springfield, MA)

I am writing this e-mail because I am thoroughly disgusted with the effort to “Willie Horton” the candidacy of Deval Patrick for Governor of Massachusetts. I hope some of you inclined not to read this will force yourself to do so … Even people who were not inclined to support Mr. Patrick for Governor should respond to the vicious advertising campaign.

My Recommendations for Election 2006
By John J. Fitzgerald

One of the most patriotic things that anyone, who loves this country, can do in the next few weeks has to be focused on voting. (I know that voting is not the only road for activists, but it does have some value.)

I would like to make a few recommendations to enlarge the effect of voting in 2006.

Google buys YouTube. This was an opportunity for Adam Hanft over at Marketplace to think about the question: just why are these open-posting video sites so popular? For viewers they’re popular because (if) there are enough interesting videos to watch to make it worth a waste of some time. But what’s in it for the people uploading the videos? Adam’s answer is interesting.

By Michael Ash, CPE Staff Economist

A recent finding from two researchers at the Federal Reserve Board implies that rich people did all of the extra consuming during the 1990s “boom.”

They reached their conclusion by looking at savings, the flip side of consuming. While the historic pattern has been that the rich save and the poor eat hand-to-mouth, the pattern of savings stratified by income class reversed over the past decade. The savings rate of high-income households declined very sharply, and the increased savings of the poor partly paid for the upper-class consumption spree.

The overall savings rate (savings as a percent of income) fell from 5.9 to 1.3 percent over the 1990s. Table 1 shows savings stratified by income class.

By Jonathan Teller-Elsberg, CPE Staff Economist

In the U.S., talk of tax reform usually means debates about taxes on income and wealth. A little less common are discussions of flat taxes and a shift from payroll, income, investment, or property taxes to consumption taxes—that is, a federal sales tax.

We’ve seen the miserable results of lowering taxes on the rich, and we’ll be dealing with the massive government debts for decades to come. Flat taxes are simply another way to lower taxes on the rich, under the guise of simplifying the tax system. (To be sure, simplifying taxes is not exactly something to dismiss out of hand—the system is far more intimidating than it should be.) The supposed advantage of a shift to consumption taxes is that the shift away from payroll and/or other taxes should lead to more jobs. This is because a payroll tax makes it “expensive” for a business to have an employee. If the payroll tax is reduced or eliminated, the business will have more money available to hire additional workers. The problem with consumption taxes is that they tend to be regressive—meaning that they fall hardest on lower-income members of society.

Another type of tax reform that deserves more attention is the environmental tax shift (ETS), also known as the green or ecological tax shift. The idea here is to increase taxes on activities that result in environmental damage and use the money generated to reduce other taxes by the same amount. As with the consumption tax idea, most proposals center around reducing payroll taxes.

By Thomas Masterson, CPE Staff Economist

The Basic Income Guarantee (BIG) is just what it sounds like: a guaranteed basic level of income. Most proposals suggest that it be distributed to every adult citizen without regard to income or wealth. BIG would replace all of the social programs currently in place that attempt to reduce or eliminate poverty, such as welfare, unemployment insurance, and Medicaid, with a monthly payment sufficient to lift an individual out of poverty.

Interestingly, this proposal is drawing support from the right as well as the left (leftists have long supported versions of this proposal). Even Charles Murray (think “The Bell Curve”) likes it: he has written a book about it in which he seems to say that he thought it up, calling it “The Plan.” By eliminating the need to monitor for fraud and abuse of the system, BIG would actually be cheaper than our current system of multiple benefits and eligibility criteria. BIG would also get rid of the disincentive to work built into the welfare system–often working for pay leads to a decrease in benefits, making work a less attractive option. And, by allowing people to decide on their own what to use the money for (though Murray’s plan calls for $3,000 of his $10,000 annual grant to be spent for health insurance), BIG would increase efficiency. Lefties like it because it frees people from dependence on employers and gives them more bargaining power to demand good working conditions and better pay.

By Helen Scharber, CPE Staff Economist

The new national bankruptcy laws that went into effect in late 2005 prompted a big stir, not to mention a record-setting level of bankruptcy filings just before the laws changed. What is it about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that caused so much controversy? Like its Orwellian cousins the Clear Skies and Healthy Forest Initiatives, this act—whose very title suggests it will enhance consumer protections—does anything but. Indeed, the problems with this new law have much to do with what it does not include.