Book Announcement

MORE UNEQUAL: ASPECTS OF CLASS IN THE UNITED STATES

Monthly Review Press Edited by Michael D. Yates

With contributions by John Bellamy Foster, Vincent Navarro, William K. Tabb, Michael Perelman, Richard D. Vogel, David Roediger, Kristen Lavelle and Joe Feagin, Sabiyha Prince, Martha Gimenez, Stephanie Luce and Mark Brenner, Peter McLaren and Ramin Farahmandpur, Michael D. Yates, Angela Jancius, and Michael Zweig.

"Workers in the United States are systematically being allocated a shrinking share of the prodigious wealth we produce, and that's old news. This widening exploitation of workers and communities further exposes the myth of a 'just' capitalist economy. Despite the radical increase in economic and social inequality, we still lack a cohesive popular understanding and consciousness of why and how our market-based economic system facilitates this 'one-sided class war' against us.




"More Unequal: Aspects of Class in the United States is a strategically assembled collection which binds diverse, informed, often compellingly personal explorations of social and economic inequity together into a revealing journey through the scarred terrain of today's working-class reality. This book should be off the shelf and in the hands, and backpacks, of a new generation of working-class activists who can lead the struggle to collectively claim a new direction." -Jerry Tucker, former UAW International Executive Board Member & co-founder of the Center for Labor Renewal

"The shocking data about wealth, income, home ownership, access to health care, education, and political influence cry out for analysis which is driven by the desire not only to understand but also to transform. Fortunately, the scholars and activists who have contributed to More Unequal offer such analysis, and they do so clearly and succinctly. This book will prove useful to teachers, students, researchers, and activists as we struggle to understand how class is working in the twenty-first century United States." -Peter Rachleff, professor of history, Macalester College, and President, Working Class Studies Association

"This excellent collection helps us to further rehabilitate the discussion of class both in the United States and globally." -Bill Fletcher, Jr., writer and activist

"Extraordinarily comprehensive.focuses on the effects of class oppression and exploitation" -Roxanne Dunbar-Ortiz, writer

Table of Contents

Introduction & Acknowledgements - Mike Yates

1. Aspects of Class in the United States: A Prologue - John Bellamy Foster

2. The Worldwide Class Struggle - Vincent Navarro

3. The Power of the Rich - William K. Tabb

4. Some Economics of Class - Michael Perelman

5. Harder Times: Undocumented Workers and the U.S. Informal Economy - Richard D. Vogel

6. The Retreat from Race and Class - David Roediger

7. Hard Truth in the Big Easy: Race and Class in New Orleans, Pre- and Post-Katrina - Kristen Lavelle and Joe Feagin

8. Will the Real Black Middle Class Please Stand Up? - Sabiyha Prince

9. Back to Class: Reflections on the Dialectics of Class and Identity - Martha Gimenez

10. Women and Class: What Has Happened in Forty Years? - Stephanie Luce and Mark Brenner

11. The Pedagogy of Oppression - Peter McLaren and Ramin Farahmandpur

12. Class: A Personal Story - Michael D. Yates

13. Class for a Downwardly Mobile Generation - Angela Jancius

14. Six Points on Class - Michael Zweig

Contributors Notes Index

Michael D. Yates is associate editor of Monthly Review. For many years he taught economics at the University of Pittsburgh at Johnstown. He is the author of Cheap Motels and a Hotplate: An Economist's Travelogue (2006), Naming the System: Inequality and Work in the Global System (2004), and Why Unions Matter (1998), all published by Monthly Review Press.

Rich and Poor Multipliers Again

Earlier I asked about the multipliers for the consumption of rich and poor people. Let me be a little bit and more explicit. I would assume that rich people spend a lot more on personal services and expensive goods.

Expensive goods tend to have much higher markups. Remember Henry Ford II responding to the influx of Volkswagens observing that mini cars mean mini profits. Expensive branded goods have very high markups, meaning relatively few jobs per dollar of expenditure compared to the spending of the less affluent. Personal services are probably bimodal. Some professional work would probably mean relatively few jobs per dollar of expenditure; some less prestigious work might mean quite a few jobs per dollar of expenditure; for example, underpaid immigrant nannies. Any thoughts?

Would Redistributing Income to the Poor Increase National Savings and Long-term Growth?

It would seem that Scott Patterson has turned the usual tinkle down argument on its head.



As Michael notes, this WSJ piece is arguing:

The Wall Street Journal suggests that the economy might not be affected by the credit crunch because it will mostly hit the poor. Since the poor don't spend that much, the economy can happily sail along. I was wondering how multipliers might differ by income class.

Exactly the right question. The usual rightwing argument for NIBOR DOOH economics (take from the poor and give to the rich) is that the poor have a high marginal propensity to consume, while the rich have a high marginal propensity to save. My own (maybe too much Ando-Modigliani lifecycle dominated) is that the marginal propensities to consume v. save don’t differ by income class. But if the WSJ wants to tell us that the poor save more – great. I’m all in favor of things that would increase long-term growth such as movements that would reduce income inequality!

Economic Benefits of the Trickle-up?

The Wall Street Journal suggests that the economy might not be affected by the credit crunch because it will mostly hit the poor. Since the poor don't spend that much, the economy can happily sail along. I was wondering how multipliers might differ by income class.


Patterson, Scott. 2007. "Has the Crunch Filtered Down to Consumers?" Wall Street Journal (18 October): p. C 1.
"Dean Maki, an economist at Barclays Capital, expects households to muddle through even as lenders get more strict. He says many of these credit problems have hit lower-income consumers, while wealthier spenders remain largely unscathed. Roughly half of consumer spending comes from the top 20% of the income bracket, Mr. Maki says."

Lieberman-Warner: The Fall Lineup

I haven’t had time to study the new edition of Lieberman-Warner, which bills itself as this fall’s comprehensive political consensus on national climate change policy. The broad outlines provided here make two things clear however:



1. The bill falls far short of what is needed. It covers only a portion of the economy, sets targets that are too low and auctions too few of the permits. It allows too many loopholes, such as offsets and provisions to raise the caps against promises of future tightening. It rebates exactly none of the (insufficient) auction revenues. This last point is important for both political and economic (demand-sustaining) reasons. It micromanages funding for energy alternatives, with several earmarks that are dubious at best. It would take a much longer post to spell out all of the particulars, but I hope we will soon have a thorough analysis. (If you are producing one, or if one crosses your screen, please give us a link.)

2. The bill represents a compromise based on today’s political alignment. If it were to be passed, and if someone could get Bush to sign it as he lay in a hospital post-surgical room fogged out on painkillers, it would be a terrible mistake, locking us into a bad framework for years to come. 2008 should be the year of climate debate, not climate decision. Progressives should put forward a simple, comprehensive, forward-looking bill to focus the discussion, even though it would have no chance in the current congress. After November 2008 we should be in a position to get something on climate that goes far beyond what is possible today.

The U.S. Tax Bite: 1975 v. 2006

Via Greg Mankiw comes a chart provided by David Cay Johnston entitled Increasing Cost of Government. A couple of things strike me about this graph. The first is that the U.S. “tax share” as Greg calls it is #17 out of the 20 nations listed. The second is the statement that the share of GDP has increased in most nations, which includes the U.S. according to this 1975 v. 2006 comparison.

Point in time comparisons can be misleading especially when the measurement of taxes does not included deferred tax liabilities, which is why I have graphed both spending and taxes as a share of GDP for the period from 1967 to 2006 using information provided by table 3.1 from this source. The year 1975 was an odd one to pick for the comparison point. Taxes as a share of GDP may have been less than 27% as compared to 29.8% in 2006, but government spending as a share of GDP was 31% in 1975 as compared to 31.3% in 2006. You see, we had a recession back then followed by Ford’s tax cut designed to offset this recession.

To be fair, government spending as a share of GDP had spiked and then retreated for the next four years. Who knew Jimmy Carter was a small government Republican? President Carter’s term of office was followed by 12 years of Republican leadership where Ronald Reagan and George H. W. Bush promised to keep our taxes low. But it seems government spending as a share of GDP grew over this period. They were followed by big spending Bill Clinton – or so some would have you believe. But our graph shows spending as a share of GDP fell to 29.4% by 2000. Since then – spending as a share of GDP has increased. While George W. Bush would tell you that he cut our taxes, Milton Friedman might rebut with simply “to spend is to tax”.

Raiding Your Social Security Benefits

Mark Thoma demolishes some nonsense from Amity Shlaes so we don’t have to. First the nonsense:

The wage increases mean that newer beneficiaries get a bigger pension than their predecessors, even after adjusting for inflation. Thompson was suggesting that we base the formula upon inflation alone. Then every pensioner gets what his big brother or sister did, adjusted for inflation. But not more.

Mark notes:

Now, as to indexing, here's what happens if you don't adjust for rising living standards. Nominal wage indexing (as is done now) accounts for both changes in inflation and changes productivity over time (see the %Δ equation above), whereas price indexing only adjusts for price changes, it makes no allowance at all for changes in living standards (i.e. for changes in productivity).

True but we need to add one bit to this. Ms. Shlaes is not comparing what my son will receive when he retires some 45 years from now to what my daughter will get when she retires. Fred Thompson’s proposal will make sure that my kids get no more than I get even though they are likely to earn more over their lifetime than I did. Which means they will pay more into the Trust Fund than I did. Yet, they are supposed to get no more than their dad got? Is Amity Shlaes too stupid to understand this? If so, why is Bloomberg giving her a column?

Schumpeter, War, and the Woeful Deficiency of Economic Theory

Was Schumpeter correct when he wrote: "Economics is a very unsatisfactory science. But it would have to be much more unsatisfactory than it is if such an event as a war, however extensive and destructive, sufficed to upset its teaching."



Was Schumpeter correct when he wrote: "Economics is a very unsatisfactory science. But it would have to be much more unsatisfactory than it is if such an event as a war, however extensive and destructive, sufficed to upset its teaching."

Schumpeter, Joseph A. 1954. History of Economic Analysis (NY: Oxford University Press): p. 1146

During all-out wars when a country's very existence is at stake, only the most foolish leader would rely on markets to run the economy. Also, during wartime, many people (excluding corporate executives?) respond to nonmarket incentives, allowing the economy to produce much more than conventional economic theory would predict.

Here is a short section from my book, Transcending the Economy:

Earlier, we discussed how economies cast aside the market when society mobilizes for war. People too behave differently during wars. Rather than performing work in a perfunctory manner, many people redouble their efforts on the job in order to contribute to the mobilization.

I do not deny that many people are unmoved by patriotic fervor. Nor would I suggest that wartime profiteering is unknown. The point is that such individualistic motives recede during times of war, while more socially-oriented behavior becomes more common.

People even leave traces of this changed motivation in the statistical residue of the times. For example, Robert Lucas, a conservative economist who won the Nobel Prize in Economics for his work in developing techniques that cast doubt on the effectiveness of government policy, estimated the average level of economic efficiency for the United States economy by calculating the trend of the ratio of output per unit of capital between 1890 and 1954. He found that, at times, for instance during depressions, the actual output per unit of capital fell below his trend line. At other times, the actual output per unit of capital exceeded the trend line.

Lucas discovered that during the war years, 1944 through 1946, the output per unit of capital surpassed the trend line by more than 20 percent. At no time, before or after, did the United States economy match this remarkable performance (Lucas 1970, p. 154).

This achievement is extraordinary because during this period, many of the most qualified workers were in the military rather than on the shop floor. The workers who replaced them had considerably less work experience. Because of decades of discrimination, the black workers who came from the South to work in Northern factories had far less education than the workers that they replaced. Similarly, many women without much experience in working for wages effectively "manned" the assembly lines.

Conventional economic theory suggests that industrial efficiency should have suffered dire consequences from this reliance on a supposedly less qualified labor force, yet Lucas shows that nothing of the sort happened. Instead, productivity soared.

Of course, we are accustomed to expecting productivity to increase during war time. War stimulates demand, which makes the economy work more efficiently. In addition, Lucas himself attributes some of the marvelous performance of the wartime economy to the use of overtime in industry.

While increased demand and overtime may have been a factor in stimulating the economy, emotional forces were also at work. War can make people pull together. War can create a sense of urgency. At times, powerful ideals can motivate working during times of war.

In the United States, World War II called forth just such a sense of idealism. People who labored in the factories in the United States during the war often did their best in order to contribute to the struggle against fascism. Such ideals were more compelling than greed for most workers.

Casey B. Mulligan, a colleague of Lucas's at the University of Chicago, found further statistical evidence suggesting the influence of ideals (Mulligan 1998). According to economic theory, only changes in monetary incentives can change behavior. When wages fall, work effort should shrink accordingly.

He found that roughly ten million more civilians were employed during the war than if employment had followed its prewar trend (Mulligan 1998, p. 1040), even though "after-tax real wages of manufacturing production workers were lower in absolute terms (and even lower relative to trend) during the war years 1942-1945 than in the few years immediately preceding and following the war" (p. 1044). Mulligan reported on his efforts to attempt to develop alternative explanations within the confines of standard economic theory to interpret this bulge in employment even though real after-tax wages were falling. In every case he failed, suggesting that patriotic idealism lay behind the rise in labor force participation. In other words, more people were working than would be expected based merely on the desire to earn more wages. Instead, people were coming into the labor force to contribute to the war effort.

Eventually, the patriotic consensus frayed around the edges. Workers became frustrated seeing their sacrifices unmatched by their employers who were enjoying unparalleled profits. As a result, toward the end of the war, strike activity began to pick up. Still, the spirit of community was sufficiently strong to produce the high levels of productivity that caught the attention of Robert Lucas.

Similarly, Israel mobilized 15 percent of its labor force for the Yom Kippur War, but the Gross National Product declined only 5 percent (Maital 1982, p. 114). The decline in production might not seem to be as impressive as the experience of the United States, but remember the United States had time to adjust to the wartime demands, while the Yom Kippur War was a brief affair.

The wartime experiences of Japan and Germany offer even more powerful illustrations of the ability of people to overcome adversity. Jack Hirshleifer, an economist from the University of California at Los Angeles, reported that ten days of bombing raids during July and August 1943 destroyed half the buildings in Hamburg. Yet, within five months the city had regained up to 80 percent of its productive capacity (Hirshleifer 1987, pp. 32-33). The United States government was interested to find out what determined the effectiveness of the Allied bombing attacks. John Kenneth Galbraith, the famous Harvard University economist, assembled a team that included some of the most prominent economists in the world. These researchers found that bombing only made the Germans more resolute. According to the findings of the survey, "the air raids of 1943-4 ... may have kept up the tension of national danger, and created the requisite atmosphere for sacrifice" (cited in Galbraith 1994, p. 131; see also Galbraith 1981, p. 205; and Scitovsky 1991, p. 258).

On August 6, 1945, the United States Air Force dropped an atomic bomb on Hiroshima. The next day, electric power service was restored to surviving areas. One week later, telephone service restarted (Hirshleifer 1987, p. 34).

No doubt the Germans and the Japanese, like their counterparts in the United States, worked overtime to rebuild their economic capacity, but even trebling the average work day would not have sufficed to accomplish what they did. Their success in reconstructing their economy required enormous creativity and ingenuity.

We also see a more intensive development of new technologies during periods of crisis. Ordinarily, the typical large corporation is timid about exploring new ideas, yet the same people, who typically display little creativity within the confines of the large corporations, are more inclined to promote great scientific breakthroughs under the urgency of war.

Based on his reading of Japanese history, Shigeto Tsuru, an important Japanese economist, proposed the concept of creative defeat, meaning that a horrendous defeat can unleash a torrent of energy and ingenuity. The end result can be an even greater level of economic development than would have occurred in the absence of the setback. In his words: "Japan is an example of a fantastically creative response to defeat. One recalls that Schumpeter used to puzzle the students of his 'Business Cycle' course ascribing the Japanese boom of 1924-1925 to the Great Kanto Earthquake of 1923. The defeat in the last war brought about, of course, a far greater scale of devastation in the economy of Japan, necessitating a fresh renovating start in almost every aspect" (Tsuru 1993, p. 67).

Sustainability Is Us

Dani Rodrik wonders whether econ blogging is sustainable. We have the answer.

Rodrik cites Mankiw, who thinks his blog is eating up too much of his time and concludes:

So if economists with high opportunity costs of time start to get out, shall we have a lemons problem on our hands? Will eventually the only prolific bloggers remain the ones that are not worth reading?

Now there is the obvious point that some of the big names in economics (not Dani thankfully) are a bit lemonish themselves, but we won’t go there. No, we will just point out that a shared blog like this one is the sustainable solution. I can’t speak for my co-conspirators, but I can barely find the time to write even short, minimal content posts like this one. If I had to do this every day I wouldn’t. But we have a team to pick up the slack.

The McGovern-Clinton Demogrant

John Hinderaker thought this idea was awful:

McGovern ran on a far-left platform that included a proposal that at the time was deemed risible - the "demogrant." The demogrant program was simple: the federal government would write a check for $1,000 to every American … But the demogrant has returned! Today, Hillary Clinton unveiled her own demogrant proposal: every newborn American baby will get a birthday present from the federal government in the form of a $5,000 check … It occurred to Scott that Hillary's proposal is basically a demogrant, adjusted for inflation. Out of curiosity, he went here and did the math. The result was striking. McGovern's $1,000 in 1972 was worth, in 2006 dollars, $4808.90. Add a few bucks for 2007, and Hillary's baby present is a dead ringer for the demogrant proposal that was laughed off the stage in 1972!

Guess which conservative economist gave this idea some support?



Greg Mankiw directs us to a paper by Jon Gruber and Emmanuel Saez entitled The Elasticity Of Taxable Income: Evidence And Implications. Greg emphasized this portion of their paper:

the optimal system for most redistributional preferences consists of a large demogrant that is rapidly taxed away for low income taxpayers, with lower marginal rates at higher income levels.

He adds:

If I were a redistributionist, here is what I might propose: A large fixed payment to every citizen, paid at the beginning of every month, financed by a proportional tax on consumption, such as a value-added tax.

When Senator Clinton floated her demogrant, Greg wrote:

The big problem with U.S. fiscal policy is that, over the years, politicians of both parties have voted for unfunded entitlements for the elderly, which will (unless scaled back) result in substantially higher taxes on future generations … How might this be funded? There are only three groups that could be asked to pay for the new entitlement with higher taxes (or lower benefits): the current elderly, those currently of working age, or the same future generations who are getting the new benefit and are slated to pay for existing unfunded entitlements. Which group do you think Senator Clinton has in mind?

It’s a fair question – but it does seem, the demogrant is not such a crazy idea if it is done in a fiscally neutral way. Of course, fiscal neutrality never stopped the GOP candidates for President from advocating tax cuts.

Social Security: U.S. Treasury Declares Trust Fund Reserves Not To Exist

Mark Thoma reads the latest from the Treasury Department so we don’t have to:

To the extent, however, that Social Security surpluses result in higher deficits in the non-Social Security portion of the budget, then government saving is not increased by higher Social Security surpluses. In that case, future Social Security benefits that would have been financed with higher issuance of publicly held debt will instead have to be financed with reductions in non-Social Security spending or increases in non-Social Security taxes.

Is it that easy for the Republican thieves in the White House? This line was put in context by Kent Smetters as I discussed here.



Check this out:

Today's deficit estimate release by the Congressional Budget Office is good news for American taxpayers. Like the estimates put forward by the Office of Management and Budget, it shows that our government is on a path to meeting the goal I set forth of putting the budget into surplus by 2012.

James Hamilton (exuse me: Jim's capable sidekick - Menzie Chinn) challenges this happy talk and Mark Thoma has more. Both note that the surge in tax revenues may be over so the deficit might not continue to fall. But notice that President Bush is talking about the unified deficit. As noted here, the general fund deficit remains quite large.

Yet George W. Bush and those in the GOP who wish to replace him as President have no intention to either scale down our defense spending (after all, our stupid invasion of Iraq is their priority) or reverse that tax “cuts”. Translation –they wish to squander those Trust Fund surpluses on the Iraq War and income tax cuts for the rich. And now his Treasury Department admits he has looted the Lock Box. Besides ending our stupid invasion of Iraq, the issue during the 2008 campaign should be whether the Lock Box will be honored.

US-INDIA NUKE DEAL REPORTEDLY GOING DOWN

By Barkley Rosser

A front page story in WaPo today reports that the proposed agreement between the US and India for the US to assist in providing fuel for civilian nuclear power plants in India may be going down due to opposition from leftist parties in India to India becoming "too close" to the US, although the right-wing BJP has also joined in opposing this agreement (the leftists are in the coalition government, the BJP is not). This is true on the surface, but the report leaves out important details. One is that the US has been pressing India not to build a natural gas pipeline to Iran, long an ally (neither is too fond of Pakistan), which feeds the complaints of the opposition. Also, there has been opposition in the US over India violating the Non-Proliferation Treaty by actually building nuclear weapons, with vague US pressure on that issue also raising hackles in India.

The further wiggle on this not covered in the story is that many nuclear scientists in India also oppose the plan because they see it bringing to an end India's efforts to develop an alternative, independent, cheaper, and safer nuclear technology, thorium reactors, while putting India into a dependent position on the US for nuclear fuel. Beyond this, failure of this agreement may well make far more difficult any meaningful effort to restrain global carbon emissions over the next few decades. The thorium tech is not really ready to go. India will be massively increasing its electricity production potential over the next couple of decades, no matter what anybody says. Given its poverty, they are only going to go for the cheapest available "off the shelf techs." The hard bottom line is that those alternatives for India in a serious way are coal or nukes (although natural gas from Iran might help a bit). Failure of this agreement may mean that they will go with coal, and that will be that, too bad for the world with respect to global warming.

Conduitry: A Blast from the Past?

It appears that the conduit consortium is simply an extra layer of securitization. It reminds me of the way the lender of last resort function was implemented, sort of, with several noticeable failures, in the era preceding the creation of the Fed. It has the potential to further concentrate risk, like an Army Corps flood control project that can withstand a category 3 but not 4 storm—if there are any buyers.

From an equity standpoint, I think James Hamilton has it right:

In my opinion, part of what created the current problem was the perception that participants were too big and too many to fail. If the government won't let Citigroup fail, could it allow a superconduit to go down?

I am skeptical of any claims for a feel-good, this-will-solve-all-the-problems fix. The reality is that someone must absorb a huge capital loss. The question we should be asking from the point of view of public policy is, Who should that someone be?

My answer is: the shareholders of Citigroup.

PREDICTION MARKETS AND THE ECONOMICS NOBEL: OOOOPS!

One of the more innovative of the George Masonites is Robin Hanson, who runs the philosophy of science-oriented blog, overcoming bias. He is a big fan of the accuracy of prediction markets. But the various betting markets on the Sveriges Riksbank Prize for Economics in Memory of Alfred Nobel, such as intrade.com, were just way off. The top bets as of yesterday were in order, Fama, Barro, Tullokck, Helpmann, Grossman, Dixit, and Tirole. None of the actual winners: Hurwicz, Maskin, or Myerson, was even in the betting pool. Oooops!

I think what we see here is the hand of the Committee Chair, Juergen Weibull, a game theorist. I had heard scuttlebutt that Myerson and Maskin would be the winners of "the next Nobel in game theory," but figured that was a ways off because of that being it two years ago. So, Weibull figured out to give it to game theory for an application, in this case, mechanism design. A question arises if this is his last gasp before stepping off the committee, or if he is a new Assar Lindbeck, a dominating figure who will be around for years. In any case, for those who are not aware of it, Hurwicz's approach to mechanism design looks an awful lot like a an effort to figure out how to do central planning right.

stock options

Krugman has beat me to the punch on this, but Floyd Norris' article in the Friday Times is interesting. He summarizes a paper looking at the effect of stock options on CEO risk-taking. The paper finds that there is a tendency to take inefficient levels of risk associated with being paid with options. This is what would be predicted by simple theory, but I haven't seen it tested before. Here is an example I use with my classes:

Suppose a CEO has option with exercise prices equal to the current market price of the stock, $20. She has two directions she might take the company in. In one, earnings and therefore the stock price, will more or less certainly increase by 20% over the next year (the "therefore" depending on the heroic assumption that the stock market is efficient). With the other direction, earnings have equal chances of doubling or being cut in half. Unless the owners are insanely risk-loving, the second direction is one they would never take; it has both higher variance and lower (actually zero) expected return. The CEO, on the other hand, makes an expected return of $4 per share taking the first direction, compared to 1/2($20) = $10 taking the second. The point is that, for the CEO, the 2nd direction constitutes a one-sided gamble. If the price doubles he exrecises the option and makes $20 per share. If the pice tanks, the option is worthless - the CEO neither gains not loses: heads, she wins; tails, the stockholders lose. Norris notes that in-the-money options would take away these perverse incentives - then the CEO would lose something if the stock price fell. (Hmm: is this last point destined to emerge as part of an apologia for back-dating options!)