2011 - %3, October

Yet More Grim Inequality News from the CBO

| Tue Oct. 25, 2011 6:54 PM EDT

The Congressional Budget Office is out with a timely new report on income inequality, which you can find here. Nickel version: The rich are getting richer, and the rest of us are just kind of drifting along.

The main summary chart is the one on the right. Since 1979, adjusted for inflation, incomes of the broad middle class (solid blue line labeled "21st to 80th percentiles") have increased about 40 percent, which comes to a sluggish 1 percent per year. During the same period, the incomes of the richest 1 percent have increased about 280 percent, or 7 percent per year. This is a pretty familiar chart by now, but one thing to note is that the incomes of the rich are pretty volatile: They drop a lot during recessions, but they also bounce back pretty quickly and regain their high growth rates as soon as the recession is over. This chart only goes through 2007, but the same dynamic has been at work in the aftermath of the Great Recession: a steep drop followed by an equally steep recovery.

Another set of charts is below. These are a little less familiar and need a bit of explanation. They show Gini inequality coefficients for different kinds of incomes, and the more distorted the chart the higher the inequality.

The top left chart shows the inequality of labor income in 1979 (light blue) and 2007 (dark blue). As you can see, it's moderately unequal, and the level of inequality hasn't changed a lot over the years. Likewise, the bottom right chart shows the inequality of capital gains income. This is extremely unequal, but again, the level of inequality hasn't changed too much. Both the light blue and dark blue lines are pretty close to each other.

The other two charts show business income and capital income, and they're quite different. Both show a fairly heavy amount of inequality, and, more interestingly, they show that the level of inequality has widened dramatically over the past three decades. Business income, which means income going to owners of private businesses, has grown much more concentrated, probably due to the growth of high incomes among privately owned professional firms (law, medicine, and finance). And capital income, which is largely dividends and rental income, has become far more concentrated as well. I'm not quite sure what story this tells, but one thing it tells us for sure is that most of the growth in income since 1979 has been in nonlabor income. Which is to say, not the kind of income that people like you and I get much of.

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Getting the NGDP Debate Out Into the Open

| Tue Oct. 25, 2011 2:37 PM EDT

Kelly Evans writes in the Wall Street Journal today that NGDP targeting might not be the monetary panacea its supporters suggest:

There are at least three problems with this strategy, however. First, it assumes that the Fed can sensibly determine the “right” trend for nominal GDP. Second, it isn’t clear that it can actually achieve any such target. And third, doing so would run a huge risk of conflicting with the Fed’s congressional mandate to promote “stable prices”—something that can’t unilaterally be rewritten.

Matt Yglesias is unimpressed:

The fact that this doesn’t state the statutory mandate correctly should tip you off that something has gone amiss. The Fed’s actual mandate is a mixed mandate to pursue stable prices and full employment. For decades, however, it’s been a little bit unclear what this should mean in practice. One of the great advantages of an NGDP target is that it combines prices and real output (which is to say employment) in a single index.

....The other objections are worse. Having the Fed do anything assumes that the Fed can sensibly determine the “right” trend for whatever it’s doing. Similarly, any institution with any prescribed mission might fail to achieve the mission. Deploying this as an objection would be like a universal solvent.

I guess I'd read Evans a little more sympathetically. She does mention the Fed's dual mandate (low inflation and low unemployment) in the second sentence of her piece, so the rest of the column should probably be read partly as an opinion about whether the Fed should allow higher inflation right now in order to bring down unemployment. Matt is right that one of the theoretical virtues of NGDP targeting is that it combines both employment and inflation into a single metric, which would make this question moot for policymakers, but it unquestionably does imply that during recessions the Fed would tolerate higher inflation. I think that's a good thing (as does Matt); Evans doesn't. But it's certainly a key issue that deserves plenty of public discussion.

Evans's other two points are worth thinking about too. It's true that the Fed has to pick a target no matter what it's doing, but NGDP is a new one with no track record. That makes it trickier to get a consensus about what the right figure should be, and consensus is important since the whole point of NGDP targeting is that everyone has to believe the Fed is really, truly committed to its target. And the question of whether the Fed can hit an arbitrary NGDP target is critical. Central banks have pretty time-tested mechanisms for hitting inflation targets, but growth targets are something different. There are plenty of economists who are skeptical that monetary policy alone can accomplish this. I'm a little skeptical myself, and as I wrote yesterday, I also feel like some caution is warranted here. Finding some kind of mechanical monetary rule that automatically produces stable growth is sort of the Holy Grail of monetary economics, and we should subject any new proposed rule to plenty of tough questioning.

In the end, I think that for lots of people the issue of NGDP targeting has become sort of a foil for a different question: should the Fed engage in massive monetary easing right now in order to get the economy back on track? NGDP targeting says yes, so those of us in favor of easing are likely to find it an agreeable idea. Conversely, those who are afraid of the consequences of massive easing are likely to play up its problems. That's human nature for you. But regardless, it's good to get all this stuff out in the open.

UPDATE: Bennett McCallum, who's been advocating the idea of NGDP targeting (aka nominal income targeting) since the 80s, has a pretty readable primer on the subject here. Worth a look.

A Look Inside the Mind of Mitt Romney

| Tue Oct. 25, 2011 1:49 PM EDT

I'm a huge fan of Benjamin Wallace-Wells, and this month he has a terrific profile of Mitt Romney in New York magazine. But it probably isn't really right to call it a profile of Romney per se. It's more a profile of the Romney method, the way that Bain Capital, the private equity firm he ran during the 80s, helped usher in the shareholder value revolution that made American businesses leaner and meaner; spurred mass layoffs in the name of efficiency; and made huge, performance-based compensation for executives a standard feature of American corporations.

The whole thing is well worth reading, but if it's Romney himself you want some insight about, it mostly comes at the end. After retailing an anecdote about how Romney's interest in healthcare reform in Massachusetts was spurred by a short conversation with one of his former Bain partners, we get this:

What separates Romney’s plan from Obama’s—and gives some clues about his potential presidency—is its almost-accidental origin. Romney did not begin with a philosophical quest to improve American health care. He began with the idea of himself as a problem solver and asked those around him for a problem that he might usefully solve. I remembered, when I was told this story, an anecdote I’d heard from a former political staffer of Romney’s. On even basic philosophical questions like abortion, the staffer said, Romney did not try to resolve the question in the abstract, as a matter of principle, and would consider instead various hypothetical cases—for instance, a late-term abortion—and build from them a politics. The line that Romney is a flip-flopper may vastly understate the depth of the condition.

It is arresting to imagine a Romney White House, inevitably filled with as many former Bain colleagues as each of his other public ventures have been: The PowerPoints, the 80-20 jargon, the clinical separation of decision-making from ideology, the detachment of those decisions from moral consequence, a persistent blind spot for people as people. It would represent the final ascension of a perfectly American type, one that has already remade the culture of business. I once asked a Bain colleague of Romney’s how Romney thought of his own core competence. “I think Mitt thinks he’s good at being Mitt Romney,” the colleague said.

It's hard not to think of Robert McNamara and the whiz kids when you read that, and hard not to wonder if Romney's updated version would be equally disastrous. It would probably depend on circumstances. In Massachusetts it basically worked out OK. But if something like the Vietnam War crops up during a Romney presidency, it might not.

Anyway, read the whole thing. Immersing yourself once again in the LBO fever of the 80s and its consequences might or might not make your day, but it does give some real insight into Mitt Romney's character. Since he might very well be your next president, that's worth knowing.

Sushi Plate Detects Radioactivity in Seafood

| Tue Oct. 25, 2011 1:00 PM EDT

It sounds like a spoof, but this appears to be for reals: The Fukushima Plate—a sushi platter that comes with a built-in radiation detector:

Image by Nils FerberImage by Nils FerberThe plate's designer, Nils Ferber, explains how it works: Before using the plate, you set the level of radiation you're comfortable with. If the plate isn't glowing, your food has no detectable radiation. One glowing ring indicates a low level of radiation; two rings signals "significantly increased levels" of radiation. The dreaded red ring "tells you that the measured dose of radiation is beyond the limiting value you set before."

What I'm wondering: Are you supposed to trot this plate out to restaurants? And if you get the red ring, do you send your food back? Awk-ward.

Via the London Daily Mail.

The GOP Hates Bikes

| Tue Oct. 25, 2011 12:24 PM EDT

Over the past few months, as Republicans have focused their attention on cutting what they see as wasteful government spending, they've zeroed in on a surprising new target: bicyclists, and the programs that serve them.

The federal government spends about $40 billion a year on transportation projects. Of that, about $928 million has been devoted to what's known as a "transportation enhancement" program, which provides funding for projects—including rails-to-trails conversions, bike lanes, and bridges—that make cycling safer, and thus more viable as a commuting option. But as Congress gears up to reauthorize the massive transportation funding bill this year, Republicans are arguing that states shouldn't be forced to use scarce transportation funds to encourage bike commuting when bridges for cars are falling down.

"We’re doing all these things that, if we had extra money, if we were running a surplus, sure, nobody would really be complaining about it," Sen. Tom Coburn (R-Okla.) told the Washington Post. But, Coburn added, "We can no longer have silly priorities get in the way of real needs."

States spend only about 1 percent of all transportation funds on projects devoted to cycling or pedestrian improvements. Yet Republicans see this as an area ripe for cutting. Over the summer, House Majority Leader Eric Cantor (R-Va.) targeted DC's nascent Capitol Bikeshare program, which provides cheap rental bikes at subway stations and other strategic locations in the Washington Metro area (including northern Virginia) to encourage bike commuting.

The program has been wildly successful and has inspired other cities to replicate it as a good way of reducing traffic congestion and air pollution (not to mention obesity). But Cantor sees only waste. As TBD reported in August, Cantor used the GOP's "YouCut" website to highlight Capitol Bikeshare as a foolish venture ripe for elimination. Cantor also complained that bike-sharing programs were one reason that federal transportation spending was vastly exceeding the revenues brought in by the gas tax. He writes: 

The Federal government distributed more than $53 billion in funding for highways and transit projects in FY 2011 from the federal highway and transit trust funds. Federal excise taxes on gasoline sales are supposed to support these programs, however spending has significantly exceeded gas tax revenues in recent years. One reason for the excess has been federal spending on projects that don’t involve highways or transit systems at all, including federally funded bike sharing programs. Bike sharing programs were part of the more than $1 billion the federal government spent on programs to promote biking and walking in 2010. Federal bike and walking programs received hundreds of millions of stimulus dollars in addition to an annually recurring funding base that now exceeds $600 million. Bike sharing programs involve installation of bike storage facilities throughout a metropolitan area, together with the purchase of publicly-owned bicycles that riders can use for free or a nominal fee as a method of transportation. Federally-funded bike sharing programs are currently operating in cities such as Washington DC, New York City, and Minneapolis.

The actual reason that gas tax revenues aren't meeting demand for infrastructure improvements is that Congress hasn't raised the tax since 1993, so its value has been eaten up by inflation. But no matter. Targeting bike programs to try to tame the federal budget seems to fall in line with the GOP's belief that the whole deficit problem could be solved if we just got rid of NPR and Planned Parenthood. It's an ideological battle rather than a viable budget solution. Bike programs are associated with liberal Democrats who believe in climate change and care about the environment, so Republicans like Cantor would like to get rid of them, even if those programs make it much easier for some of his constituents to get to work every day.

The Great Libya-Shariah Freakout of 2011

| Tue Oct. 25, 2011 12:24 PM EDT

Between the deaths of Osama bin Laden and Moammar Qaddafi, it's hard out there for conservatives trying to portray President Barack Obama as weak on foreign policy. But with Libya Transitional National Council Chairman Mustafa Abdel-Jalil's announcement over the weekend that Libya would have "Islamic Shariah law [as] the basis of legislation," the right is settling on a narrative: Obama is making the world safe for Shariah!

There are a few problems with this line of argument, but the most obvious is that President George W. Bush invaded two mostly Muslim countries, Iraq and Afghanistan, and both of them adopted constitutions that identify Islam as the state religion and decree that laws have to be consistent with the precepts of Islam. Despite this, both constitutions contain provisions respecting the rights of religious minorities—as does Libya's draft constitution.

That's not to say that there's nothing to worry about—any country that identifies one particular religion as its "state religion" will, by definition, end up treating religious minorities as second-class citizens in some fashion. Indeed, Iraq and Afghanistan's religious minorities continue to face persecution. But it's not like the Libyan TNC writing Islam into its constitution is an Obama-sponsored departure from the Bush policy of midwifing fully formed Madisonian democracies from the ashes of despotic regimes. You can have American-backed dictators forcing nominal secularism onto Muslim countries at gunpoint or you can have popularly elected governments reflecting the will of the mostly-Muslim populations of these countries, but you can't have both.

Conservative blogger Scott Johnson mocks Obama for saying shortly after Qaddafi was killed that "We’re under no illusions—Libya will travel a long and winding road to full democracy." Now you'd think that people from a country that wrote the right of white people to own black people as property into its Constitution and then fought a brutal civil war over it that killed a full two percent of its population might have some understanding of the fact that the road to "full democracy" isn't exactly a smooth one, but, you know, Orientalism.

As the process of building democratic societies in Libya, Egypt, and Tunisia goes forward, the rights of women and minorities should remain a priority for the US and the world at large. But wringing one's hands over the idea that Islam will likely play a prominent role in the Middle East's fledgling democracies is pointless. The US can't force its preferred outcomes in those countries any more than the fallen dictators who used to be in charge. It's hard to teach pluralism and tolerance at gunpoint. Those are values societies have to learn on their own.

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Small Businesses Still Mostly Concerned About the Economy

| Tue Oct. 25, 2011 12:01 PM EDT

In a Gallup poll released yesterday, 22% of small business owners said their most important problem was "complying with government regulations." That's not really surprising. What's surprising, frankly, is that it's taken so long for the number to rise even that high. Given the 24/7 blitzkrieg about "job killing regulations" from Fox News, the Wall Street Journal, and Republican politicians of all stripes, I'm surprised the number didn't pass 50% months ago. If you hear something often enough, it takes on a life of its own.

The truth, of course, is that business regulation hasn't changed all that much in the Obama era, and that's especially true for small businesses. There are some regulations in the pipeline for the future, but even there, most of the big ones — Obamacare, Dodd-Frank, new EPA regs — hardly affect small businesses at all. And most of the ones that would — dust rules, new licensing rules for farm vehicles — are myths.

You can see this for yourself if you read further in the Gallup poll. When they're asked about "problems," many small business owners immediately make an association with "government regulations." But when Gallup asks "what would you need to see in order to feel that your business will thrive in 2012?" that association goes away and you get a truer picture of what's really bothering them. This time, only 12% mention government regulations and a full 42% respond with some version of an improved economy. And it's really more like 59% if you include fundamentally economic complaints like "cash flow" and "availability of credit."

Everybody hates regulations, and small businesses have some legitimate gripes about overregulation. Right now, though, their real problem is crystal clear: the economy sucks and they need more customers. That's just a big fat reality, and there's nothing much that Fox News can do to change that no matter how much they try.

Rick Santorum Still Thinks Sodomy Should Be a Crime in Texas

| Tue Oct. 25, 2011 12:00 PM EDT
Former Sen. Rick Santorum (R-Penn.)

Just in case you thought he'd had a change of heart, GOP presidential candidate Rick Santorum went on Minnesota rap-core evangelist Bradlee Dean's radio show on Saturday to double down on his belief that states should be able to make anal and oral sex illegal: 

Santorum pointed to the landmark case, Lawrence v. Texas, where the U.S. Supreme Court overturned sodomy laws that were used to imprison gays and lesbians.

"And I stood up from the very beginning back in 2003 when the Supreme Court was going create a constitutional right to sodomy and said this is wrong we can’t do this," Santorum said. "And so I stood up when no one else did and got hammered for it. I stood up and I continue to stand up."

You know the rest. Asked to defend his comments back in 2003, Santorum went a step further, arguing that allowing two men to have sex would be akin to "man on dog." In response, sex columnist Dan Savage held a contest to come up with an alternative definition for Santorum, and redefined it as—NSFW!—"the frothy mix of lube and fecal matter that is sometimes the by-product of anal sex." As MoJo's Stephanie Mencimer has chronicled, the alternative definition has became a serious problem for the candidate because it's the first thing that comes up when you Google his name. (The second result is a Wikipedia entry about Savage's "Santorum" campaign.)

But what's really interesting here is the venue: When last we heard from Dean, he was suing Rachel Maddow, MSNBC, and the American Independent News Network for $50 million for quoting him, with some caveats, suggesting that the execution of gays was "moral." (Dean has explicitly condemned the execution of gays, but has, like Santorum, called for sodomy to be outlawed and gays to be banned from public office.) The crux of the lawsuit was that Dean believed liberal media outlets were using him as a proxy to assassinate Rep. Michele Bachmann's character, because Bachmann has raised money for Dean and praised (and prayed for) his ministry. He also was upset that Maddow made fun of his name. So has Dean given up on Bachmann? If the polls are any indication, he wouldn't be the only one.

Chart of the Day: Reagan Loved Tax Hikes

| Tue Oct. 25, 2011 11:40 AM EDT

The next time you hear Paul Ryan, Eric Cantor, Michele Bachmann, or Rick Perry wax nostalgic for the good old, tax-cutting, government-drowning Reagan days of yore, consider tweeting the following, via Bruce Bartlett:

As Bartlett, a former Republican budget official, notes, the Tax Equity and Fiscal Responsibility Act of 1982 was the single largest peacetime tax increase in history. But he also points out that there was still a net tax cut during the Regan years, with revenue nearly $265 billion lower in 1988 than it would have been without the sweeping tax cuts he introduced in 1981's Economic Recovery Tax Act—half of which he'd taken back by the end of his administration.

That set the stage for...the next twenty-five years of broken tax policy:

It was their inability to simply cut taxes that really made Republicans interested in tax reform, which had historically been of more interest to Democrats. It was only by pairing tax increases with tax cuts that Republicans could keep alive their goal of reducing statutory tax rates. Their ultimate goal has long been to abolish progressivity by having a single tax rate that applies to everyone. . . .

As the Republican tax guru Grover Norquist put it last week, when taxes are on the table there are no spending cuts. "When taxes are off the table, you get spending cuts," he said.

My friend Grover is factually wrong. Spending as a share of the gross domestic product fell after both the 1990 and 1993 budget deals, in large part because of tough budget controls that Republicans abandoned in 2002 so that they could cut taxes without restraint. And contrary to Mr. Norquist’s theory, the tax cuts of the George W. Bush years did not constrain spending, which rose as a share of the G.D.P. almost every year of his administration (as the raw data confirms).

The false mythology of the single tax rate for all, or flat tax, lives on in the campaign promises of Rick Perry, the Texas governor and GOP presidential contender. Perry's tax plan, which he rolled out this morning in the Wall Street Journal, is to give Americans a choice between a flat tax of 20 percent or their current income tax rate. Kevin Drum already called BS, branding the scheme as a grotesque giveaway to the rich (not unlike Herman Cain's 9-9-9 and 9-0-9 plans). That, of course, is the point: Republicans haven't cared about reducing spending for a long time. What they do care about is cutting taxes on the rich.

Army Ranger Dies on 14th War Deployment

| Tue Oct. 25, 2011 11:00 AM EDT
Sgt. 1st Class Kristoffer B. Domeij

As right-wing pundits decry the end of one US war and the conduct of another, they'd do well to consider the case of Sgt. 1st Class Kristoffer Bryan Domeij. The 10-year veteran of the elite Army Rangers was killed, along with two of his comrades, in an IED attack in Afghanistan on October 22. But Domeij's situation was special: He perished on his 14th war deployment since 2002.

Domeij's commanding officer, Col. Mark Odom, called him "the prototypical special operations" leader whose special skills—he was one of the first soldiers qualified to coordinate Air Force and Navy air attacks from his ground position—made him a hot commodity in the war zones. Domeij, he said, was a "veteran of a decade of deployments to both Iraq and Afghanistan and hundreds of combat missions."