Wealth Disparity Expands Further [feedly]

Wealth Disparity Expands Further
https://ritholtz.com/2019/11/richest-1-percent/

Earlier this year, we looked at a new series of data released by the Federal Reserve: It is a vast run of information taking apart details of U.S. wealth distribution, including not only ownership of wealth but households liabilities:

"Although the wealthy own most of the assets, the less well-off hold a disproportionate share of the liabilities.  The top 10% have a relatively modest amount of debt ($633 billion for the top 1%, and the rest of the top 10% has $2.8 trillion). Meanwhile, the bottom 50% has $5.6 trillion in liabilities; the group between the top decile and the bottom half has more than $6 trillion in liabilities. In other words, the bottom 90% has total liabilities of almost $12 trillion."

Is it any wonder Popularism has become, well, more popular? I suspect that proposals for wealth taxes, free college, medicaid for all, etc. are all a direct result of the widening gulf between the haves, and the have nearly everything (the have nots seem to have fallen out of the discussions).

The most recent quarterly data reveals that disparity between the wealthy and every one else has grown even further. Here's Bloomberg:

"The U.S.'s historic economic expansion has so enriched one-percenters they now hold almost as much wealth as the middle- and upper-middle classes combined.

The top 1% of American households have enjoyed huge returns in the stock market in the past decade, to the point that they now control more than half of the equity in U.S. public and private companies, according to data from the Federal Reserve. Those fat portfolios have America's elite gobbling up an ever-bigger piece of the pie.

The very richest had assets of about $35.4 trillion in the second quarter, or just shy of the $36.9 trillion held by the tens of millions of people who make up the 50th percentile to the 90th percentile of Americans — much of the middle and upper-middle classes."

Credit the rising stock market, low rates sending real estate prices higher, and "cumulative advantage. The wealthier you get, the more opportunities present themselves to take advantage of the very capital-friendly environment.

Labor, on the other hand, is still playing catch up.

At the current rate of growth, the top 1% will soon pass the middle and upper-middle classes. "Household wealth in the upper-most bracket grew by $650 billion in the second quarter of 2019, while Americans in the 50th to 90th percentiles saw a $210 billion gain."

While many people are focused on the raw inequality, I believe there is an even bigger issue: lack of economic mobility and broad opportunities for people not born wealthy to succeed and raise their own prospects in life. The United States used to be the standard for this, but sadly, compared with other countries, we have fallen far behind in creating economic opportunities for all…

 

More charts after the jump

 

Previously:
Wealth Distribution Analysis: New Inequality Data Is a Gift to Campaign Sloganeers
Barry Ritholtz
Bloomberg, July 16, 2019
ritholtz.com/2019/07/inequality-data/

 -- via my feedly newsfeed

A Bold Plan to Strengthen and Improve Social Security is What America Needs [feedly]

A Bold Plan to Strengthen and Improve Social Security is What America Needs
http://cepr.net/publications/op-eds-columns/a-bold-plan-to-strengthen-and-improve-social-security-is-what-america-needs

The Social Security 2100 Act proposed by Connecticut Representative John Larson is getting closer to being passed by the House of Representatives. It now has more than 200 co-sponsors. If it were to be approved and become law, it would both improve the program's benefit structure and its financial picture.

The biggest item on the benefit side is that it guarantees a benefit of at least 125 percent of the poverty level for anyone who has worked for at least 30 years. The logic here is straightforward; we should be able to ensure that anyone who has put in a full lifetime of work will not be in poverty in their retirement years.

The second big change on the benefit side is that it changes the cost-of-living formula for adjusting benefits by tying it to an index of consumption items purchased by the elderly rather than the overall Consumer Price Index. The inflation adjustment for Social Security benefits has long been a major issue, with many politicians wanting to change the formula to reduce benefits.

Updating the cost-of-living formula does not necessarily raise or lower benefits. It is simply an effort to make the indexation reflect the changes in the actual cost of living seen by the elderly. We know consumption patterns of senior citizens differ substantially from the population as a whole.

For example, they consume more health care and fewer new cars. This difference in consumption patterns could mean that their cost of living increases more or less than the rest of the population, but if we had an index geared to the consumption patterns of the elderly, at least we know it would be accurate.

The third feature on benefits is a change in the formula that will increase average benefits for a bit less than $400 a year. This has provoked some opposition since this increase will go to not just lower-income seniors, but also middle-class and relatively affluent seniors.

Opponents of hiking benefits argue that typical seniors are actually doing quite well. New research from the Census Bureau, based on tax filings, found that seniors were actually doing somewhat better than data from surveys indicated.

While this was good news, there is an important qualification to this finding. By far the main reason that income for seniors was higher than previously reported is that the survey data missed a lot of income from traditional defined benefit pensions. In other words, the Census study didn't find seniors had hundreds of thousands in savings that were not being picked up in the surveys; the story was defined benefit pensions.

This matters because we know that traditional defined benefit pensions are rapidly disappearing. This means that the picture of middle-class seniors retiring with little other than their Social Security to support them still looks right. The average benefit this year is just over $17,600, certainly not enough to maintain a middle-class lifestyle. For this reason, the modest benefit increase proposed by Larson is very reasonable.

Larson proposes to cover this increase, as well as the projected Social Security shortfall, by having a gradual increase in the payroll tax and applying the tax to very high-income workers. On the latter point, the income subject to the payroll tax is currently capped at just under $133,000. This means that someone earning millions of dollars each year would pay no more in Social Security taxes than someone earning $132,900. Larson's bill would make wages over $400,000 subject to the tax.

His other change is an increase in the payroll tax of 0.1 percentage point annually, split between workers and employers. This increase would continue for 24 years, for a total increase of 1.2 percentage points on both the worker and the employer.

While this is a middle-class tax increase, it is much smaller than increases we saw in the decades of the 1950s, 1960s, 1970s, and 1980s. More importantly, if we can sustain decent wage growth, it is a tax that should be easy to bear.

After adjusting for prices, wages have risen 1.5 percent annually over the last five years. If we can continue this pace of wage growth, the Larson bill would take back much less than 10 percent of the pay increase in taxes. Of course, wage growth may not continue, but then our focus should be on getting decent wage growth, not blocking revenue needed for Social Security.

In short, this is a well-considered bill that would accomplish good for current and future retirees. Congress should move on it.

 -- via my feedly newsfeed

Some Economics of the Clean Water Act [feedly]

Marx once quipped, "if appearance and reality were the same, there would be no need for science"  Tim Taylor is a guy persistently validating that thesis

Some Economics of the Clean Water Act
http://conversableeconomist.blogspot.com/2019/11/some-economics-of-clean-water-act.html

Here's an uncomfortable set of facts about federal clean water policy in the United States: 1) People care about it a lot; 2) Over the years, total spending on clean water has been high; 3) Water quality has improved; and 4) The estimated benefits of clean water regulation in the US seem relatively low and in many cases even negative. My discussion here will draw on an essay by David A. Keiser and Joseph S. Shapiro, "US Water Pollution Regulation over the Past Half Century: Burning Waters to Crystal Springs?" Journal of Economic Perspectives, Fall 2019, 33:4, pp.  51-75.

Keiser and Shapiro offer some evidence from Gallup polls that clean water is traditionally near the top of environmental concerns.

The amount spent on clean water legislation has been substantial. They write:

Over the period 1970 to 2014, we calculate total spending of $2.83 trillion to clean up surface water pollution, $1.99 trillion to provide clean drinking water, and $2.11 trillion to clean up air pollution (all converted to 2017 dollars). Total spending to clean up water pollution exceeded total spending to clean up air pollution by 70 to 130 percent. ... Since 1970, the United States has spent approximately $4.8 trillion (in 2017 dollars) to clean up surface water pollution and provide clean drinking water, or over $400 annually for every American. In the average year, this accounts for 0.8 percent of GDP, making clean water arguably the most expensive environmental investment in US history. For comparison, the average American spends $60 annually on bottled water ... 

The quality of water has improved. For example, the share of wastewater and industrial discharge being treated has risen.One common measure is whether the water is "fishable," and the share of water "not fishable" has been declining.

But here's a kicker: the benefit-cost ratios for cleaning up water, especially surface water, don't look as good as the ratios for cleaning up air pollution. The first column looks at benefit-cost analyses for cleaning up surface water, typically under the Clean Water Act, which supported sewage treatment plants and regulates facilities discharging waste from a "fixed source," like a pipe, into navigable waters. The second column looks at benefit-cost ratios for rules about cleaning up drinking water, typically under the Safe Drinking Water Act, which sets and enforces drinking water standard and also has a say in cleaning up groundwater.

The perhaps startling pattern is that the benefit-cost ratios for surface water rules are typically less than one, meaning that benefits are below costs. For drinking water, the benefit-cost ratios on average exceed one, but it's still true that 20% of the rules have a benefit-cost ratio below one. Rules about air pollution have much better benefit-cost ratios.

So what's going on here? Here are some thoughts:

1) The rules listed here are often about additions to the earlier rules. Thus, it's possible that earlier rules about protecting surface water and drinking water had better benefit-cost ratios, but now that some of the worse problems have been addressed, the benefit-cost ratios for additional rules are lower.

2) For surface water rules, in particular, the "benefits" in these studies rarely involve human health. Reducing illness and saving lives in humans is where the big benefits are. If the benefits are measured as improved recreational opportunities on certain lakes and rivers, the numbers are going to be much lower. In addition, it seems that a number of the studies of benefits of cleaner surface water don't take into account improvements in property values or work conditions from being close to cleaner water.  Benefits like biodiversity from cleaner water may also be underestimated. As Keiser and Shapiro write: "Most existing benefits of surface water quality are believed to come from recreation, but available data on recreation are often geographically limited (for example, one county, state, or lake) and often come from a single cross section. Hence, our subjective perception is that underestimation of benefits is more likely a concern for surface water quality regulation than for other regulations."

3) A wide range of evidence has shown that market-based environment regulation--like using cap-and-trade arrangements or pollution taxes--can be a much cheaper way to achieve a given amount of environmental cleanup. However, it's often harder to figure out how to use a system of, say, tradeable pollution permits to clean up surface water. As a result, the costs in these benefit-cost calculations may be higher than necessary. However, use of these more flexible tools in surface water clean-up is rising: for example, there is a Chesapeake Bay Watershed Nutrient Credit Exchange and a
Minnesota River Basin Trading market. For a discussion from a few years ago about these issues, a good starting point is Karen Fisher-Vanden and Sheila Olmstead. 2013. "Moving Pollution Trading from Air to Water: Potential, Problems, and Prognosis." Journal of Economic Perspectives, 27 (1): 147-72.

4) Even taking the possibilities that reducing water pollution has greater benefits than currently estimated,  and potentially might have lower costs, a general uneasiness that the benefit-cost ratios are lower than other forms of environmental protection remains.

There are some big issues about water pollution on the horizon. For example the original clean water laws back in the early 1970s pretty much skipped over agriculture, but in many parts of the country agricultural runoff is the single biggest surface water pollution problem.

There's also a big dispute going on over what is meant in the Clean Water Act by the phrase "Waters of the United States." It's clear that this includes rivers and lakes. But what about wetlands, headwater areas that drain into rivers and lakes, or streams that come and go seasonally? As the authors write:

Another challenge involves the language of the Clean Water Act protecting "Waters of the United States," which has led to legal debates over how this term applies to roughly half of US waters, primarily composed of wetlands, headwaters, and intermittent streams. Two Supreme Court decisions held that the Clean Water Act does not protect most of these waters (Rapanos v. United States, 547 US 715 [2006]; Solid Waste Agency of Northern Cook County (SWANCC) v. US Army Corps of Engineers, 531 US 159 [2001]). In 2015, the Obama administration issued the Waters of the United States Rule, which sought to reinstate these protections. However, in 2017, President Trump issued an executive order to rescind or revise this rule. The net benefits of these regulations have also become controversial ...

Keiser and Shapiro also point out that there is a LOT more economics research about air quality than water quality, perhaps in part because the Environmental Protection Agency collects and makes available copious data on air pollution, while data on water pollution is collected more sporadically and divided up in many places. They point out a number of ways in which data related to water pollution is becoming more complete and available. But matching up the very local steps to reduce water pollution with the very local effects of water pollution, and then tracing water pollution through the natural hydrogeography, remains in many ways a work in progress.  

 -- via my feedly newsfeed

A Wealth Tax: Because That’s Where The Money Is [feedly]

A Wealth Tax: Because That's Where The Money Is
https://economicfront.wordpress.com/2019/11/12/a-wealth-tax-because-thats-where-the-money-is/

The bank robber Willie Sutton, when asked by a reporter why he robbed banks, is reputed to have answered, "Because that's where the money is."  Which brings us to a wealth tax.

Transforming our economy is going to be expensive.  And a tax on the wealth of the super wealthy is one way to capture a sizeable amount of money, which is why both Bernie Sanders and Elizabeth Warren include the tax in their respective programs.  The economists Gabriel Zucman and Emmanuel Saez estimate that Sanders's proposed wealth tax would raise $4.35 trillion over the next decade, while Warren's would raise $2.75 trillion.

Where the money is  

The concentration of wealth has steadily increased since the mid-1990s, as illustrated in the following Bloomberg News chart.

A recent Federal Reserve Bank study highlights the fact that the top 10 percent and even more so the top 1 percent of households have been especially successful in increasing their equity ownership in US public and private companies.  For example,

in 1989, the richest 10 percent of households held 80 percent of corporate equity and 78 percent of equity in noncorporate business. Since 1989, the top 10 percent's share of corporate equity has increased, on net, from 80 percent to 87 percent, and their share of noncorporate business equity has increased, on net, from 78 percent to 86 percent. Furthermore, most of these increases in business equity holdings have been realized by the top 1 percent, whose corporate equity shares increased from 39 percent to 50 percent and noncorporate equity shares increased from 42 percent to 53 percent since 1989.

It is worth emphasizing that last point: the top 1 percent of households now control more than half of the equity in US businesses, public and private.

The figure below shows total wealth holdings for all US families as of the second quarter, 2019.  The top 1 percent now own almost as much wealth as all the families in the 50^th to 90^th percentiles combined.

A comparison with the size and distribution of wealth in 2006, shown below, illustrates the rapid gains made by those at the top.

In 2006, the total wealth held by families in the 50^th to 90^th percentiles was slightly greater than that held by families in the 90^th to 99^thpercentiles and significantly larger than those in the top 1 percent.  But not anymore.  And sadly, families in the bottom half of the distribution, whose wealth is predominately in real estate, have fallen further behind everyone else.

Time for a wealth tax

Recognizing this reality, and the fact that this concentration of wealth was aided by a steady decline in top individual, corporate, and estate tax rates, both Sanders and Warren want to tax the super wealthy to generate funds to help pay for their key programs, especially Medicare for All.  And, as an added bonus, to begin weakening the enormous political power of those top families.

Sanders would create an annual tax that would apply to married couple households with a net worth above $32 million — about 180,000 households in total, or roughly the top 0.1 percent.  The tax would start at 1 percent on net worth above $32 million, with increasing marginal tax rates–a 2 percent tax on net worth between $50 to $250 million, a 3 percent tax from $250 to $500 million, a 4 percent tax from $500 million to $1 billion, a 5 percent tax from $1 to $2.5 billion, a 6 percent tax from $2.5 to $5 billion, a 7 percent tax from $5 to $10 billion, and an 8 percent tax on wealth over $10 billion. For single filers, the brackets would be halved, with the tax starting at $16 million.

Warren's wealth tax would apply to households with a net worth above $50 million — an estimated 70,000 households. The tax would start at 2 percent on net worth between $50 million to $1 billion, rising to 3 percent on net worth above $1 billion.  Her proposed tax brackets would be the same for married and single filers.

Zucman and Saez have calculated how some of the richest Americans would have fared if these wealth taxes had been in place starting in 1982.  For example, Jeff Bezos, the founder of Amazon, is currently worth some $160 billion.  Under the Sanders plan his wealth would have been reduced to $43 billion.  Under the Warren plan, it would be $87 billion.

As a New York Times article sums up:

Over all, the economists found, the cumulative wealth of the top 15 richest Americans in 2018 — amounting to $943 billion, using estimates from Forbes — would have been $434 billion under the Warren plan and $196 billion under the Sanders plan.

Despite the fact that the super wealthy will still have unbelievable fortunes even if forced to pay a wealth tax, almost all of them are strongly opposed to the tax and determined to discredit it.

Challenges ahead

Polling done early in the year found strong support for a wealth tax.  As Matthew Yglesias explains:

Americans are . . . positively enthusiastic about Sen. Elizabeth Warren's proposal to institute a wealth tax on large fortunes, according to a new poll from Morning Consult.  Their survey finds that . . . the wealth tax scores a crushing 60-21 victory that includes majority support from Republicans.

Of course, this kind of support was registered before the start of any serious media effort to raise doubts about its effectiveness.  Recently, a number of wealthy business people and conservative economists have begun to make the case that a wealth tax is a radical measure that will harm the economy.  Some point to the fact that many countries that once used the tax have now abandoned it.  Twelve OECD countries had a wealth tax in 1990, now only three do (Norway, Switzerland, and Spain).  France, Germany, and Sweden are among the majority that no longer use it.

However, as Zucman and Saez explain, this fact does not mean that a wealth tax would not work in the US.  For example, in some countries it was the election of conservative governments philosophically opposed to such taxes that led to their elimination.  More substantively, they highlight four problem areas that tended to undermine the effectiveness of and support for national wealth taxes in Europe and why these should not be a major problem for the US.

First, European countries have their own separate tax laws and member states do not tax their nationals living abroad.  Thus, a wealthy person living in a country with a wealth tax could easily move to a nearby country without a wealth tax and escape paying it.  And many have.  But, as the economists note,

The situation in the United States is different. You can't shirk your tax responsibilities by moving, because US citizens are responsible to the Internal Revenue Service no matter where they live. The only way to escape the IRS is to renounce citizenship, an extreme move that in both Warren's and Sanders's plans would trigger a large exit tax of 40 percent on net worth.

Second, European governments tolerated a high level of tax evasion. Until last year, they did not require banks in Switzerland or other tax havens to share information about deposits with national tax authorities.  This made it easy for the wealthy to hide their assets. The US is in a better situation to avoid this outcome.  The Foreign Account Tax Compliance Act, signed in 2010, requires foreign financial institutions to send detailed information to the Internal Revenue Service about the accounts of U.S. citizens each year, or face sanctions. Almost all foreign banks have agreed to cooperate.

Third, European wealth taxes had many exemptions and deductions.  In contrast, there are none in the proposed plans by Warren and Sanders.  Zucman and Saez highlight the French program that was in place from 1988 to 2017 as a prime example:

Paintings? Exempt. Businesses owned by their managers? Exempt. Main homes? Wealthy French received a 30 percent deduction on those. Shares in small or medium-size enterprises got a 75 percent exemption. The list of tax breaks for the wealthy grew year after year.

Fourth, European wealth taxes fell on a considerably larger share of the population than would the proposed plans by Warren or Sanders. In Europe, "wealth taxes tended to start around $1 million, meaning they hit about 2 percent of the population, compared with about 0.1 percent for the proposed U.S. plans."  This broader reach of the European wealth taxes helped to generate popular pressure to weaken them, leading to their eventual removal.  The more limited reach of the proposed US plans should help to blunt that development in the US.

We can certainly expect a fierce debate over the viability and effectiveness of a wealth tax as the campaign season continues, especially if Sanders or Warren becomes the Democratic Party nominee for president.  We should be prepared to advocate for the tax as one important way to ensure adequate funding of needed programs.  But we should also take advantage of the debate to shine the brightest light possible on the growing and already obscene concentration of wealth in the US and even more importantly on the underlying and destructive logic of the capitalist accumulation process that generates i

 -- via my feedly newsfeed

Thomas Piketty: Surpassing identity conflict via economic justice [feedly]

Surpassing identity conflict via economic justice
https://www.lemonde.fr/blog/piketty/2019/11/12/identity-conflicts-and-economic-justice/

Europeans have long observed from a distance the mix of social and racial conflicts which structure political and electoral cleavages in the United States. Given the growing, and potentially destructive, importance taken by these identity conflicts in France and in Europe, they might do well to consider the lessons to be learned from foreign experiences.

Let's take a step backwards. After having been the party of slavery during the civil war from 1861-1865, in the 1930s the Democratic Party gradually became the party of Roosevelt and the New Deal. As far back as the 1870s, the Democratic Party had begun to reconstruct itself on the basis of an ideology which could be described by as social-differentialist: it was violently inegalitarian and segregationist towards Black Americans, but more egalitarian than the Republicans towards the white population (in particular the new immigrants from Italy and Ireland). The Democrats supported the creation of the federal income tax in 1913 and the development of social insurance after the crisis of 1929. It was not until the 1960s, under the pressure from Black militants, and in a transformed geopolitical context (Cold War, decolonisation), that the Party was to turn its back on its heavy segregationist past and to support the cause of civil rights and racial equality.

From this point on, it was the Republicans who were to gradually get the racist vote or more precisely the vote of those in the White population who considered that the main concern of the federal State and the educated white elites was to ensure that the minorities were given preference. The process began with Nixon in 1968 and Reagan in 1980; it then gained momentum under Trump in 2016 who hardened the identity and nationalist discourse in the wake of the economic failure of Reaganomics and its promises of prosperity. Given the open hostility of the Republicans (the stigmatisation by Reagan of the 'welfare queen', this 'queen of social welfare', presumed to personify the laziness of unmarried black mothers, until the support by Trump for the white supremacists during the riots in Charlottesville), it is not surprising to learn that the vote of the black electorate has been a consistent 90% for the Democrats since the 1960s.

This type of division on the basis of ethnic origin is in the process of being established in Europe. The hostility of the right in matters of extra-European immigration has led voters who originate from these parts of the world to take refuge in the only parties who do not openly reject them (therefore, on the left), which in return leads to right-wing accusations of favouritism towards them on the part of the left. For example, during the second round of the presidential election in 2012, 77% of voters who stated they had at least one grand-parent of extra-European origin (or 9% of the electorate) voted for the socialist candidate, as compared with 49% for the voters of European origin (19% of the electorate) as for those with no stated foreign origin (72% of the electorate).

In comparison, in the United States the European 'minorities' are characterised by a much higher percentage of mixed marriages (30% amongst first generation North African immigrants, as compared with little more than 10% for Black Americans), which should alleviate the divisions. Unfortunately the religious dimension and the question of Islam (almost totally absent in the United States) contribute on the contrary to hardening the situation.

From this point of view, the European situation is closer to that of India, where the Hindu Nationalists in the BJP built their ideology on the rejection of the Muslim minority. In India the confrontation of identities concerns the consumption of beef and the vegetarian diet. In France, it focuses on the question of the headscarf and sometimes on the length of skirts and the wearing of leggings on the beach. In both cases we witness a similar anti-Muslim obsession in the ranks of the supporters of Hinduism and the supporters of extremist Secularism and the National Front. This also takes the form of an extremely violent discourse which extends to all those who defend the rights of minorities (who are almost accused of being pro-Jihadi). In both cases the latter sometimes run the risk of exacerbating the conflict, for example by defending the legitimate right to wear a headscarf with more determination than the right not to do so, and not to be subjected to this somewhat retrograde form of pressure.

How can we escape this escalation of conflict? First, the discussion should be set in the context of economic justice and the combat against inequality and discrimination. Countless studies have demonstrated that for one and the same diploma, those whose names have an Arabo-Muslim consonance are often not invited to a job interview. It is urgent to set up indicators and sanctions enabling us to monitor the development of these discriminatory practices and get them to evolve.

More generally speaking, it is the absence of any economic discussion which feeds identity-based no-win conflicts. Once we abandon any discussion of an alternative economic policy and we continue to explain that the State no longer controls anything, apart from its frontiers, there is no reason to be surprised that the political discussion focuses on questions of frontiers and identities.

It is time for all those who refuse the clash forecast between identitarian nationalism and elitist globalism to get together and rally around a programme for economic transformation. This involves educational justice, going beyond capitalist ownership and an actual and ambitious project for the renegotiation of the European treaties. If we do not succeed in going beyond these petty squabbles and old hatreds, then hatred reminiscent of fascism may well win the day.

 -- via my feedly newsfeed

Centrists, Progressives and Europhobia [feedly]

Krugman: Centrists, Progressives and Europhobia
https://www.nytimes.com/2019/11/07/opinion/europe-economy.html

PK on progressives vs centrists reads my mind, but the EU skew in the article is a tricky defense, IMO.

TEXT ONLY

Will the Democratic presidential nomination go to a centrist or a progressive? Which choice would give the party the best chance in next year's election? Honestly, I have no idea.

One thing I can say, however, is that neither centrism nor progressivism is what it used to be.

There was a time when arguments between centrists and progressives were framed as debates between realism and idealism. These days, however, it often seems as if the centrists, not the progressives, are out of touch with reality. Indeed, sometimes it feels as if centrists are Rip Van Winkles who spent the last 20 years in a cave and missed everything that has happened to America and the world since the 1990s.

You can see this in politics, where Joe Biden has repeatedly declared that Republicans will have an "epiphany" once Donald Trump is gone, and once again become reasonable people Democrats can deal with. Given the G.O.P.'s scorched-earth politics during the Obama years, that's a bizarre claim.

You can also see it in economics. There are many reasonable criticisms you could offer of Elizabeth Warren's economic proposals. But the one I keep seeing is that Warren would turn America into (cue scary music) Europe, maybe even (cue even scarier music) France. And you have to wonder whether people who say such things have paid any attention to either Europe or America over the past few decades.

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Just to be clear, Europe does have big economic problems. But they're not the ones such people seem to imagine.

When people say such things, they seem to have in mind a picture of the U.S.-Europe comparison that did seem to have some validity in the 1990s. In that picture, nations with large social spending and extensive government regulation of markets suffered from "Eurosclerosis," persistent lack of jobs.

Employers, the story went, were reluctant to expand both because of high taxes and because they feared not being able to fire workers once hired. At the same time, workers had little incentive to accept jobs because they could live off generous social programs.

Europe also seemed to be lagging in the adoption of new technology: For a while, the U.S. surged ahead in making use of the internet and information technology in general, leading to arguments that Europe's high taxes and regulation were discouraging innovation.

But all of that was a long time ago. The jobs gap has largely vanished; adults in their prime working years are actually more likely to be employed in Europe, France included, than they are in America.

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Any gap in the adoption of information technology has also long since vanished; households in much of Europe are as or more likely to have broadband than their U.S. counterparts, partly because the U.S. failure to limit providers' monopoly power has led to much higher prices for internet access.

It's true that European nations have lower G.D.P. per capita than we do, but that's largely because, unlike most Americans, most Europeans actually have significant vacation time and hence work fewer hours per year. This sounds like a choice about work-life balance, not an economic problem.

And on that most fundamental of indicators, life expectancy, the U.S. has fallen far behind: French residents can expect, on average, to live more than four years longer than Americans. Why? Universal health care and policies that mitigate extreme inequality are the most likely explanations.

Now, I don't want this to sound like praise of all things European. The nations on the euro remain terribly vulnerable to financial crises, because they've adopted a shared currency without a shared banking safety net; only the heroic leadership of Mario Draghi, the former president of the European Central Bank, avoided a catastrophic collapse of the euro in 2012.

Europe also suffers from persistent weakness in demand because key players, Germany in particular, have an obsessive fear of deficits, even when the European economy desperately needs stimulus.

These are big problems, severe enough that I wouldn't be surprised if Europe is the epicenter of the next global crisis. But the problem with Europe is not that its social programs are too generous and its governments too intrusive. If anything, it's almost the opposite: Europe's economy is vulnerable because a combination of political fragmentation and ideological rigidity has left its politicians unwilling to be Keynesian enough.

The point is that centrists who point to Europe as an illustration of the bad things that happen when you're too enthusiastic about pursuing social justice are stuck decades in the past. Modern European experience actually vindicates progressive claims that we can do a lot to make America fairer without destroying incentives. And even Europe's problems make the case for more government intervention, not less.

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By all means, let's talk about whether "Medicare for all," wealth taxes and other progressive proposals are actually good ideas. But trying to shoot them down by going on about how terrible things are in France is a sure sign that you have no idea what you're talking about.
 -- via my feedly newsfeed

Minimum Wages and Overtime Rules -- recent history [feedly]

Minimum Wages and Overtime Rules 
http://conversableeconomist.blogspot.com/2019/11/minimum-wages-and-overtime-rules.html

Perhaps the best-known provision of the Fair Labor Standards Act (FLSA) of 1938 is that it set a federal minimum wage for the first time. In addition, this is the law that established the overtime rle that if you are a "nonexempt" work--which basically means a worker paid by the hour rather than on a salary--then if you work more than 40 hours/week you must be paid time-and-a-half for the additional hours. 

Charles C. Brown and Daniel S. Hamermesh take a look at the evidence on both provisions in "Wages and Hours Laws: What Do We Know? What Can Be Done?" (Russell Sage Foundation Journal of the Social Sciences, December 2019, 5:5, pp.  68-87). They write:

Although wages and hours are regulated under the same law, policy developments and research on the law's impacts could not be more different between the two areas. The federal minimum wage has been raised numerous times; and many subfederal jurisdictions impose their own wage minima that, where they exceed the federal minimum, supersede it. Perhaps because of this variation, a huge literature examining the effects of minimum wages on the U.S. labor market has arisen and has continued to burgeon. A fair conclusion is that American labor economists have spilled more ink per federal budgetary dollar on this topic than on any other labor-related policy. The opposite is the case for regulating hours. The essential parameters of hours regulation have not changed since passage of the act; and perhaps because of this, the dearth of research on the economic impact of hours regulation in the United States, especially recently, is remarkable.

(In the shade of these parentheses, I'll also mention this issue of the the RSF journal, edited by Erica L. Groshen and Harry J. Holzer, is especially rich in content, including 10 articles on the general theme of "Improving Employment and Earnings in Twenty-First Century Labor Markets." I'll list the Table of Contents for the issue, with links to the articles, at the bottom of this post.)

Minimum Wages

The US minimum wage situation has changed dramatically in the last decade or so in a particular way: a much larger share of workers live in states with a minimum wage above the federal level. Brown and Hamermesh write:

Over the past thirty years, however, states' decisions to increase their minimum wages have become increasingly important given that the federal minimum has changed less frequently. For example, in 2010 (after the 2007 federal increases had become fully effective) only one-third of the workforce was in states with state minima that exceeded the federal $7.25. By 2016, with the federal minimum still at $7.25, that fraction had risen to nearly two-thirds. As of 2018, twenty-nine states ... had minimum wages above $7.25. States that have raised their minimum wages above the federal minimum have tended to be high-wage states, and the result has been a minimum wage much more closely (though still imperfectly) aligned with local wages.

 Brown and Hamermesh focus on the studies that try to estimate the effects of a minimum wage by looking at these differences in minimum wages that have arisen across states (leaving the issues involved in studying city-level minimum wages for another day). Here are some of the points they make: 

There are basically three ways to take advantage of the state-level changes and variations in minimum wage: comparisons between states; comparisons between border counties of states; and comparisons with states and "synthetic" control groups, which basically means finding a combination of other areas that had economic patterns to a certain state before the minimum wage was changed.

When doing these comparisons, a researcher will want to adjust for other factors that might affect state economies: for example, a natural disaster that hit one state but not another, or a change in the price of oil would affect an oil-producing state. A researcher can allow for each state or border-county to be following its own time trend, or for the effect of the minimum wage on employment to be different in every state. Is the relationship between a changing minimum wage and employment a straight line or a curved line--and if it's a curved line, how curved is it? The more variables like this you include, the smaller the effect of a minimum wages on employment is likely to be. There is considerable disagreement and controversy over what variables should be included.

It's been typical in many of these studies to focus on either teenagers or restaurant workers, because they are both groups that are presumably affected by the minimum wage.

A common finding is that a rise in the minimum wage of 10% raises the wages of teenagers as a group or restaurant workers as a group by about 2%--presumably because some teenagers or restaurant workers were already earning more than the minimum wage and thus weren't affected.

Estimates of the effect of a raising the minimum wage on either employment of teenagers or restaurant workers are all over the place, depending on exactly how the estimation process is done, usually "small"--which in this case means "small enough that the earnings gains caused by a minimum wage increase are only partially offset by employment losses."

Of course, showing that past minimum wage increases had small effects in reducing employment doesn't prove that additional minimum wage increases would also have small effects. The usual belief of economists is that the effects of a rising minimum wage on employment would be small up to some point, but then start getting larger. That point is likely to vary according across states--which is why it makes some sense to have a different minimum wage across states.

At least one recent study has tried to focus on workers age 16-25 who have not completed high school--rather than teenagers in general. There some evidence a higher minimum wage might have a bigger effect on low-education workers in particular, rather than looking at teenagers or restaurant workers.

It's plausible that the effects of a higher minimum wage on employment might be larger in the long-term. For example, perhaps a firm doesn't fire anyone when the minimum wage rises, but instead just slow down on hiring. Or perhaps a minimum wage causes certain kinds of firms to be more likely to exit the market over time, or less likely to enter, or more likely to invest in labor-saving technology. Some studies have found support for these effects; others have not.

For some complementary discussion of the evidence on raising minimum wages in previous posts, see:

• "Raising the Minimum Wage: CBO Weighs In" (July 9, 2019)
• "Characteristics of US Minimum Wage Workers" (April 18, 2017)
• "Minimum Wages and the Law of Many Margins" (February 27 2013)

Overtime Rules

In contrast to minimum wage laws, overtime rules haven't changed much over time. Brown and Hamermesh write: "In the eighty years since the FLSA was enacted, the specification of its crucial parameters regulating hours—a penalty rate of 50 percent extra wages on hours beyond the standard weekly hours (HS) of forty—has not changed." Maybe the main way it has come up in recent policy disputes is when laws are proposed that employers should be able to give "comp time" for overtime work, meaning extra vacation time, instead of paying higher wages. 

But a big change in the overtime rules has been happening in a subtle way. Back in the mid-1970s, the rule was that a salaried worker had to be paid at least $455/week to be exempt from the requirement to get paid time-and-a-half for overtime. But that $455/week hasn't been changed since then, even though it's value has been eaten away by inflation. Brown and Hamermesh calculate that $455/week was about double the median weekly earnings in the US economy back in the mid-1970s; now, it's about 50% of median weekly earnings. 

To put this another way, it used to be that you had to be earning a salary of double the typical weekly earnings before you were exempt from overtime rules. Now, you can be paid a much lower salary, half of typical weekly earnings, and you are still exempt from the overtime rules. The rules requiring overtime pay thus have gradually come to apply to many fewer workers over time. The Obama administration tried to raise the limit to $913/week by using an administrative rule, but the courts held (reasonably enough, in my view) that this kind of decision needed to be made by Congress passing a law. Apparently the Trump administration has now proposed raising the limit to $679/week.

What would happen if the rules were changed so that dramatically more workers needed to be paid overtime for working more than 40 hours/week? Presumably, some of these workers would get paid overtime, but in addition, employers would try to reduce the number of workers who ended up above that weekly limit. Brown and Hamermesh run through various calculations and look at some international evidence. They write: "We can conclude that increasing the exempt limit would have raised some salaried workers' earnings and reduced their weekly hours. One exercise suggested that 12.5 million workers would have been affected ..." 

The effects of changing the rules so that more workers are eligible for overtime pay aren't enormous. Still, for workers who are being paid salaries below the median weekly wage, and thus aren't eligible for overtime, it could be a meaningful gain. They write:

If we are interested in spreading work among more people and removing the United States from its current position as the international champion among wealthy countries in annual work time per worker, minor tinkering with current overtime laws will do little. We might borrow from some of the panoply of European mandates that alter the amount and timing of work hours. Among these are penalties for work on weekends, evenings, and nights and limits on annual overtime hours, while lengthening the accounting period for overtime beyond the current single week. If our goal is to spread work and make for a more relaxed society, these changes will help but their effects will also be small.

____________

Table of Contents
RSF: Russell Sage Foundation Journal of the Social Sciences
December 2019; Volume 5, Issue 5
"Improving Employment and Earnings in Twenty-First Century Labor Markets"

• "Improving Employment and Earnings in Twenty-First Century Labor Markets: An Introduction," by Erica L. Groshen and Harry J. Holzer (pp. 1-19).
• "From Immigrants to Robots: The Changing Locus of Substitutes for Workers," by George J. Borjas and Richard B. Freeman (pp. 22-42), 
• "Public Universities: The Supply Side of Building a Skilled Workforce," by John Bound, Breno Braga, Gaurav Khanna, and Sarah Turner (pp. 43-66). 
• "Wages and Hours Laws: What Do We Know? What Can Be Done?" by Charles C. Brown and Daniel S. Hamermesh (pp.  68-87)
• "Unions, Worker Voice, and Management Practices: Implications for a High-Productivity, High-Wage Economy," by Thomas A. Kochan and William T. Kimball (pp. 88-108)
• "Making Ends Meet: The Role of Informal Work in Supplementing Americans' Income," by Katharine G. Abraham and Susan N. Houseman (pp. 110-131)
• "Understanding Trends in Alternative Work Arrangements in the United States," by Lawrence F. Katz and Alan B. Krueger (pp. 132-146) 
• "Understanding the Present and Future of Work in the Fissured Workplace Context," by David Weil (pp. 147-165)
• "Gender in the Labor Market: The Role of Equal Opportunity and Family-Friendly Policies," by Elizabeth L. Doran, Ann P. Bartel, and Jane Waldfogel (pp. 168-197)
• "Race in the Labor Market: The Role of Equal Employment Opportunity and Other Policies," by William M. Rodgers III (pp. 198-220) 
• "Disconnected Young Adults: Increasing Engagement and Opportunity," by Pamela Loprest, Shayne Spaulding, and Demetra Smith Nightingale (pp. 221-243

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