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Even Wall Street Thinks Income Inequality Could "Capsize" the Economy

| Wed Aug. 6, 2014 2:35 PM EDT

There's a lot of evidence that record-high income inequality has gutted the United States' post-recession recovery. But on Tuesday, the argument was made by an unexpected source: Standard & Poor's (S&P), a Wall Street firm providing ratings and analysis on stocks and bonds, issued a report pointing out economic disparity's role in "dampening US economic growth."

Over the next decade, S&P forecasts that the economy will expand at just a 2.5 percent annual rate, a downgrade from the 2.8 percent growth it predicted just five years ago. One explanation: "At extreme levels, income inequality can harm sustained economic growth over long periods. The US is approaching that threshold."

income distribution

The gap between the richest and poorest Americans has been skyrocketing for decades, with no end in sight. How exactly does this widening wealth gap affect the economy? "Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring," the report explains. It leads extremely wealthy households to save more and consume less, while lower-income households must borrow to sustain consumption. "When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession."

S&P warns against drastic changes to the tax code, arguing that "heavy taxation solely to equalize wages may reduce incentives to work or hire more workers…Policymakers should take care, however, to avoid policies and practices that are either too heavy handed or foster an unchecked widening of the wealth gap. Extreme approaches on either side would stunt GDP growth."

Instead, S&P suggests focusing on education to increase national productivity. According to the report, one additional year of education in the American workforce could increase GDP by $525 billion—about a 2.4 percent boost—over the next five years.

As S&P ominously concludes the report, "A lifeboat carrying a few, surrounded by many treading water, risks capsizing."

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Map of the Day: Here's Why Congress Doesn't Really Care About Your Petty Problems

| Wed Aug. 6, 2014 12:52 PM EDT

Via Vox, here's a colorful map from Broadview Networks that helps illustrate one reason that policymaking in Congress often seems so disconnected from the real world. It's because policymakers tend to be pretty well-off folks living in a pretty well-off region that shelters them from the problems many of the rest of us encounter. If you live in Missouri, you might be annoyed that internet speeds in the US are so low. But if you live in Washington DC or northern Virginia, guess what? Your internet speed is pretty good! Virginia is ranked #1 in the nation, and DC is right behind it. So is it any wonder that this really doesn't seem like a pressing problem in Congress? Especially when all the big ISPs are telling you that there's plenty of competition already—plenty!—and then slipping a few grand to your Super PAC? Of course it's not.

News You Can Use: Don't Auto-Renew Your Obamacare Policy

| Wed Aug. 6, 2014 12:05 PM EDT

Sam Baker has a long piece in National Journal about a looming Obamacare problem that could hit a lot of people who renew their coverage later this year. Here's the short version: federal subsidies are calculated based on a "benchmark" plan, and this means that low-income taxpayers can buy the benchmark plan at pretty low cost. However, since Obamacare encourages competition (yay!), your region might have a whole bunch of new, lower-cost plans available next year. This means the benchmark will be recalculated, and if you want to keep your low payments you'll need to switch to one of the newer plans.

But what if you don't? What if you just auto-renew without thinking about it? Since you're no longer buying the benchmark plan, your subsidies will go down and your annual premium will go up. Maybe a lot:

As cheaper plans come into the marketplace, millions of consumers will see the cost of keeping their plan rise. But they might not know it.

HealthCare.gov isn't able to automatically recalculate the subsidies existing consumers are eligible for. So, while the dollar value of your financial assistance drops, you can only find out that's happening by going back into the system and asking for a redetermination as part of the shopping process.

Consumers who auto-renew their policies will get the same dollar value of subsidies they got last year—even though changes in the marketplace all but guarantee that will no longer be the right subsidy amount for millions of people.

"That's the totally crazy part," Pearson said. "They're basically going to send them what they know to be the wrong subsidy."

The IRS will eventually figure out how much financial assistance you should have received, and will reconcile the difference on your taxes. If you should have gotten a bigger subsidy, the government will issue you a tax credit. If your subsidy was too big, which would be the case if you keep your plan and lower-cost options come to the market, you'll owe the IRS money.

This puts everyone in a tough spot. HHS officials want to make auto-renewal as simple and automatic as possible. Long experience shows that even a little bit of added complexity will reduce the rate of sign-ups. But a simple auto-renewal runs the risk of misleading people about how much their insurance costs if they don't switch to a new plan. What to do?

In broad terms, this is yet another bit of fallout from the sausage-making process that created Obamacare. In order to get a bill passed, it had to satisfy lots and lots of interest groups. In order to satisfy those interest groups, the structure of the program was made complex. And then, barnacles were added to barnacles to further satisfy everyone. The result is stuff like this.

In narrower terms, this might have a technical fix: add a few steps to the auto-renewal process that make the cost of renewing more transparent. Given the number of people who signed up initially despite the horrific rollout problems with healthcare.gov, I suspect this wouldn't have a huge impact on renewal numbers. And it might save a boatload of grief down the line.

In any case, if you or a friend is enrolled in Obamacare, here's the bottom line: don't just mindlessly auto-renew. Take a few minutes to find out if anything has changed that affects your annual premiums. Don't wait till next year to find out via a letter from the IRS.

Here's What You Need to Know About Tax Inversions: Almost Nothing

| Wed Aug. 6, 2014 11:15 AM EDT

I guess that corporate tax inversions are slated to be the topic of the week. This is the maneuver in which a corporation buys a company overseas and then transfers its headquarters to the new country, where tax rates are lower. Voila! A lower tax bill:

Dozens of additional deals are in the works, according to administration and congressional officials, and other companies are quietly contemplating the move. Last month, CVS Caremark chief executive Larry Merlo met with Sen. Charles E. Schumer (D-N.Y.) and urged him to act to stop the rash of expatriations. Otherwise, Schumer said that Merlo warned him, CVS “might be forced to do it, too,” to duck a total tax bill expected this year to approach 40 percent.

“There’s a huge number coming,” Schumer said in an interview. “We hear there are going to be several big announcements in August.”....The potential costs to the U.S. treasury are enormous. One measure, by the congressional Joint Committee on Taxation (JCT), suggests that the nation stands to lose nearly $20 billion in tax revenue over the next decade. Former JCT director Edward Kleinbard said he thinks the potential loss is much higher.

“My guess is they didn’t fully reflect the sharknado of inversions that is about to happen,” said Kleinbard, a law professor at the University of Southern California.

This whole issue is maddening in the usual way. As it happens, both Democrats and Republicans agree that this problem needs to be fixed, but in approximately the same way that Israelis and Palestinians both "agree" that war in the Middle East needs to be fixed. President Obama proposed a corporate tax overhaul years ago, followed by a more targeted proposal back in March, but they've gone nowhere because Republicans want a net tax cut. Republicans, for their part, have proposed wide-ranging tax reform, but the prospect of getting the current Congress to agree on wide-ranging tax reform is laughable. Hell, they can't even agree on a tiny, focused bill to fix the border crisis.

So now Democrats are pushing Obama to fix the problem administratively, and Republicans in turn are yelling "tyranny!" And that's where we stand. It's all very edifying.

This post is not an "explainer." I have deliberately left out every single relevant detail because none of them matter. Republicans want net taxes on corporations to go down, and Democrats want them to stay the same. Ne'er the twain shall meet, and that's pretty much all you need to know. But it did give me a chance to quote an eminent law professor using the word sharknado.

Voting Rights Act Signed Into Law Today in 1965

| Wed Aug. 6, 2014 10:04 AM EDT
African Americans demonstrating for voting rights in front of the White House as police and others watch; sign reads "We demand the right to vote everywhere." Warren K. Leffler/Library of Congress

President Lyndon Johnson signed the Voting Rights Act into law today in 1965. Conservatives began work to chip away at it immediately, culminating in the 2013 Supreme Court decision, Shelby County v. Holder which, in the New York Times' words, "effectively struck down the heart of the Voting Rights Act."

President Johnson signing the Voting Rights Act as Martin Luther King, Jr, and other civil rights leaders look on. Yoichi Okamoto/LBJ Library

 

The Toxic Algae Are Not Done With Toledo. Not By a Long Stretch.

| Wed Aug. 6, 2014 6:00 AM EDT
The algae bloom that swallowed parts of Lake Erie in 2011. Toledo sits near—and draws its water from—the lake's southwest region, where algae tends to accumulate.

Last weekend, Toledo's 400,000 residents were sent scrambling for bottled water because the stuff from the tap had gone toxic—so toxic that city officials warned people against bathing their children or washing their dishes in it. The likely cause: a toxic blue-green algae bloom that floated over the city's municipal water intake in Lake Erie. On Monday morning, the city called off the don't-drink-the-water warning, claiming that levels of the contaminant in the water had fallen back to safe levels. Is their nightmare over?

One expert said he could "almost guarantee" that the conditions that caused the crisis, i.e., a toxic bloom floating over the intake, would recur this summer.

I put the question to Jeffrey Reutter, director of the Stone Laboratory at Ohio State University and a researcher who monitors Lake Erie's annual algae blooms. He said he could "almost guarantee" that the conditions that caused the crisis, i.e., a toxic bloom floating over the intake, would recur this summer. But it's "pretty unlikely" that toxins will make it into the city's drinking water. That's because after the weekend's fiasco, a whole crew of public agencies, from the Ohio Environmental Protection Agency to the US Environmental Protection Agency to the City of Toledo, have been scrambling to implement new procedures to keep the toxins out. "I think they have a pretty good plan in place," he said. But "you can't guarantee [there won't be a recurrence] because you can't predict "how bad the concentration of the toxins going into the plant [from the lake] is going to be."

Reutter added that he "anticipated" that the new system for protecting Toledo's drinking water would be more expensive than the current one. Back in January, local paper the Blade reported that Toledo "has spent $3 million a year battling algae toxins in recent years, [and] spent $4 million in 2013."

And those hard realities highlight a hard fact about our way of farming: It manages to displace the costs of dealing with its messes onto people who don't directly benefit from it. The ties between Big Ag and Toledo's rough weekend are easy to tease out. "The Maumee River drains more than four million acres of agricultural land and dumps it into Lake Erie at the Port of Toledo," the Wall Street Journal reports. More than 80 percent of the Maumeee River watershed is devoted to agriculture, mainly the corn-soy duopoly that carpets the Midwest. Fertilizer and manure runoff from the region's farms feed blue-green algae blooms in the southwest corner of Lake Erie, from which Toledo draws its water.  

And those blooms don't just tie up oxygen in water and push out aquatic life, creating dead zones. They also often contain the compound that triggered the water scare: microcystin, a toxin that can cause nausea, vomiting, diarrhea, severe headaches, fever, and even liver damage. Apparently, a particularly noxious chunk of algae floated over Toledo's water intake equipment, causing the microcystin spike.

Back in early July, the National Oceanic and Atmospheric Administration (NOAA) and the University of Michigan delivered their forecast for this year's bloom on the western part of Erie: It would likely be much smaller than it was in 2011, when a record 40,000 metric tons of cyanobacteria (blue-green algae) accumulated, but likely much higher than the past decade's average of 14,000 metric tons—the researchers forecast a 2014 bloom weighing in at 22,000 metric tons. The blooms don't peak until September, which is why Reutter is convinced that the condition that created last weekend's troubles will likely re-emerge.

Here's a chart from the report:

Chart: NOAA and University of Michigan researchers

The bottom half of that chart tracks the flow of phosphorus, the component of fertilizer and manure that triggers freshwater algae blooms, into Lake Erie. Of course, farm runoff isn't the only way phosphorus makes its way into the lake. Municipal sewage and industrial waste play a role, too. But reforms imposed by the Clean Water Act in 1972 minimized those sources, pulling Lake Erie from the brink of death.

The below chart, taken from a 2013 Ohio Lake Erie Phosphorus Task Force report, shows the sources of Lake Erie phosphorus over the past several decades. Under pressure from the Clean Water Act, pollution from "point" sources like wastewater treatment plants and factories have been severely curtailed. But the CWA doesn't regulate "non-point" sources, mainly agriculture. "Harmful algal blooms were common in western Lake Erie between the 1960s and 1980s," NOAA notes. "After a lapse of nearly 20 years, blooms have been steadily increasing over the past decade."

Chart: Ohio Lake Erie Phosphorus Task Force

Climate change plays a role, too—both because longer, warmer summers give algae more time to build up, and because warmer mean temperatures are also likely driving a steep increase of heavy rains in the upper Midwest, which force more phosphorus off farm fields and into waterways. Changes in the way farmers apply fertilizers are also apparently making phosphorus more mobile as this 2012 article by Jessica Marshal for the Food and Environment Reporting Network shows.

Of course, western Ohio isn't the only Corn Belt region encountering toxic algae. "A reported chemical spill on the Des Moines River above Saylorville Lake Wednesday turned out to be a blue-green algae bloom," the Iowa Department of Natural Resources reported in late July. More recently, the Army Corps of Engineers issued an advisory against swimming in two beaches of Lake Red Rock, Iowa's largest lake, "in response to the presence of a significant blue-green algae bloom which has the potential to impact the health of humans and their pets."

The website Toxic Algae News tracks blooms nationwide. Here's its latest map. Red pins in a state mean harmful algal blooms recur annually in "many" lakes; orange pins mean they recur in one or two lakes.

And phosphorus isn't the only fertilizer component that feeds algae blooms. Nitrogen does to saltwater what phosphorus does to freshwater—and every year, the Mississippi River carries titanic amounts of nitrogen into the Gulf of Mexico, more than half of which comes from corn and soy farms. These flows feed a vast algae bloom that creates an aquatic dead zone that can reach the size of New Jersey—blotting out a wild, abundant source of high-quality seafood, in order to grow crops that mainly go to feed livestock, cars, industrial-cooking fats, and sweeteners. This year's dead zone clocks in at 5,008 square miles—"roughly the size of Connecticut and…three times larger than the 2015 goal established by a task force specifically created to address the problem," the Mississippi River Collaborative announced Monday.

Such sacrifices are what economists call "externalities"—the costs of doing business that don't show up on the bottom lines of farmers, or the companies that buy their goods for animal feed and ethanol, or the firms that sell them the seeds, pesticides, and fertilizers that facilitate mass monocropped plantings.

Residents of places like Toledo are left holding the bag. Many people there are questioning the safety of their water supply and turning to pricey bottled water instead, USA Today reports. And now, the city's taxpayers (or some public entity) will likely be paying more than ever to keep algae toxins out of the tap water.

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Tom's Kitchen: ¡Ceviche!

| Wed Aug. 6, 2014 6:00 AM EDT

I'm reading Paul Greenberg's superb new book American Catch. In it, Greenberg teases out Americans' weird relationship to the sea. "We are a nation of coasts," he writes, in which "nearly half of the population chooses to live less than ten miles from the sea." Yet on average, we eat just 15 pounds of fish and shellfish annually per capita, vs. 100 pounds of red meat. Don't even get me started about how growing loads of Midwestern corn, mainly for livestock feed, takes out huge swaths of the Gulf of Mexico, the mainland US's greatest fishery. Of the fish we do eat, a startling 91 percent is imported—much of it farmed under dodgy conditions and barely inspected by food safety authorities. Meanwhile, we export nearly a third of our own abundant wild catch.

Contemplating these contradictions made me want to eat some damned fish. So I went to Austin's stellar old-school fish monger Quality Seafood to see what I could get from the seascape nearest me, the Gulf of Mexico. The display included a gorgeous stack of black drum filets, a firm white fish subtly streaked with red—and rated a "good alternative" by the Monterey Bay Aquarium's Seafood Watch program, which scrutinizes fisheries based on their sustainability. Contemplating the brutal heat outside and my stash of produce at home—tomatoes, a red onion, serrano chiles, limes, etc—inspiration hit me: ceviche, that sublime, no-cook Latin American answer to sushi. Well, it's not exactly like sushi—the acid in the lime juice breaks down the fish, effectively cooking it. Which beats the hell out of firing up the oven on a hot day.

So I snatched a filet of black drum and got busy with the cutting board. Here's what I did. This dish brings together a lot of sharp, bright flavors in a lovely way.

Simple Ceviche
1 pound filet of a firm white fish—preferably from a nearby source—cut into ½ inch chunks
1 red onion, cut into 1/4 inch chucks
Sea salt and black pepper
4 limes, juiced; and at least one extra, in case
1 ripe tomato, cut into ½ inch chucks
1 clove of garlic, smashed, peeled, and minced into a fine paste
1 hot chile pepper, such as serrano or jalapeño, minced fine<
A little extra-virgin olive oil
1 avocado, cut into ½ inch chucks
1 small head of cilantro, chopped

Put the fish, the onions, and a good dash of salt and pepper in a bowl. Add the lime juice and toss. There should be enough juice to fully submerge the fish. If not, juice another lime and add it to the bowl. Let the fish/onion/lime juice combo sit in the fridge, covered, for an hour or so (here's an excellent Serious Eats guide to how long to let ceviche marinade based on your taste).

To finish, add the tomato, the garlic, the chile, a lashing of olive oil, and the avocado and cilantro (if someone in your crew hates cilantro, parsley and even mint work great). Toss, taste for salt, and serve with chips.

The Safest Job in the Country: Member of Congress

| Wed Aug. 6, 2014 12:59 AM EDT

In the wake of tonight's elections, Geoffrey Skelley of Sabato's Crystal Ball tweets:

Remaining incumbents look good to make it to November, so 303/306 incumbents have won renomination this cycle....Should clarify: HOUSE incumbents are now 303/306 in renomination tries; SENATE incumbents are 19/19. So 322/325 overall.

Yep, Americans sure are disgusted with Congress. An electoral rebellion is right around the corner.

On a related note: Given this year's microscopic incumbent failure rate of 0.92 percent, Eric Cantor must really be feeling crappy these days. I sure hope K Street showers him with enough lobbying money to assuage his pain.

The Obama Cousin Who Compared Obama to Hitler Just Lost His Kansas GOP Primary

| Tue Aug. 5, 2014 11:26 PM EDT

Unseating an incumbent senator is always difficult, but Sen. Pat Roberts (R-Kansas) presented an enticing challenge. In an interview with the New York Times, Roberts said he sleeps on a friend's recliner on the rare occasions he returns to Kansas. Later, in a radio interview, he admitted that he tries to return to Kansas "every time I get an opponent." Roberts might have been in trouble against a serious challenger. Instead he faced political newcomer Milton Wolf, whom he dispatched by seven points on Tuesday.

Wolf's qualifications as a Kansas tea party activist began with his family tree. He is a second cousin of President Barack Obama—whom he compared to Hitler—and a doctor, qualifications that earned him invitations to appear on cable news and talk radio to critique the Affordable Care Act as an unconstitutional attack on Americans' liberties. But Wolf's hopes of becoming the next great conservative insurgent candidate died in February at a Topeka diner, where a reporter from the Topeka Capital-Journal confronted him about images on his Facebook page (deleted before the campaign) of x-rays he'd taken of gunshot victims. Although billed as a tea party vs. establishment showdown, the Roberts-Wolf race was more of a referendum on social media protocol. And in Kansas, the verdict is clear: You shouldn't post x-rays of gunshot victims on Facebook.

Tea Partier Staves Off Primary Challenge in Koch Country

| Tue Aug. 5, 2014 10:49 PM EDT
Todd Tiahrt (left) and Rep. Mike Pompeo (right) at a July debate in Wichita.

Rep. Mike Pompeo (R-Kan.) withstood a challenge from his predecessor, former Rep. Todd Tiahrt, in a battle for the House district that's home to Charles Koch, the billionaire GOP donor and industrialist, and his company, Koch Industries. Tiahrt was a close ally of Koch Industries during his House tenure in the '90s and 2000s, taking in more than $329,000 from the company's PAC and employees over the course of his career. But Pompeo—whom Tiahrt handpicked to replace him when he ran for US Senate (and lost) in 2010—has since become Koch's favorite son. The company endorsed Pompeo this time around. Koch's backing boosted the incumbent's monetary advantage. As of July 16, Pompeo had raised a little over $2 million, while Tiahrt had only drawn $155,000 (with just $65,000 left in the bank).

Pompeo was the incumbent, but his success is actually a win for the tea party. As a congressman, Tiahrt was a founding member of the House tea party caucus. But for his comeback attempt, he ditched his prior conservative persona and ran as a moderate, even populist Republican, arguing for the reinstatement of earmarks and questioning Pompeo's support for NSA spying. Conservative groups, including the Club for Growth, FreedomWorks, and Americans for Prosperity lined up to support Pompeo, a tea party favorite since he joined the House in 2011. There won't be a revival of moderate conservatism in Kochland anytime soon.