Tag Archives: economy

Back Home in Indiana

As critical as this year’s Presidential and Senate races are, people will also vote on Tuesday for important state offices. Here in Indiana, the Republican candidate for Governor has doubled down on Mike Pence’s policies, especially his insistence that “the gays” don’t need no damn civil rights protections. He has also parroted Pence’s rosy, fact-free evaluation of Indiana’s economy.

Last Wednesday, I spoke about Indiana’s appalling levels of poverty and inequality to members of Shepherd’s Center at North United Methodist Church. I have shared much of the information in this speech previously on this blog, but it might be well to review what the data reveals about economic and human conditions in the Hoosier State in advance of Tuesday’s election. Here, then, is the text of that speech.

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I was asked to talk today about the United States’ growing problem with income inequality. There’s a lot to talk about—more than we have time for—because the causes and the consequences of growing inequality are complex and very troubling.

In 2007, I wrote a book called God and Country, in which I examined the religious roots of ostensibly secular policy preferences—things like climate change, foreign policy and economic systems. It was when researching that book that I came to appreciate the longstanding effect of Calvinism on American attitudes toward income inequality.

As I wrote in that book, the theological belief that arguably had the greatest effect on colonial economic activity was the Calvinist doctrine of predestination, which held that God had decided the ultimate fate of each person at the moment of creation. Predestination included the belief that the faithful discharge of one’s calling—the diligence with which a person worked– was evidence of the depth and sincerity of that person’s faith. Predestination, especially when coupled with the doctrine of original sin, convinced believers that the suffering of the poor must be intended by God as a spur to their repentance.

In other words, the poor were poor for a reason, and helping them escape poverty might actually thwart God’s will.

The belief that people are poor because they are somehow morally defective wasn’t universal, but it was widespread–and   that suspicion of poverty, that belief that poor people are somehow lacking in moral fiber or responsible for their own condition, has profoundly influenced American culture. Understanding that attitude about poverty is central to any effort to understand today’s arguments about income inequality.

There are cultural attitudes, and then there are facts. The facts are that, aside from children, the elderly and the disabled, poverty in the United States is experienced primarily by the working poor. Most poor people in the U.S. work forty or more hours a week; they simply don’t make enough money to live.

Let’s look at Indiana. ALICE is an acronym that stands for Asset Limited, Income Constrained, Employed. According to the United Way, ALICE families are those with income above federal poverty levels, but below what it actually costs to live in their communities. In Indiana, 36% of all households live below the ALICE threshold. About 14% are below the poverty level. To put that another way, there are 908,000 households in Indiana that cannot make ends meet. I want to emphasize: these are families and individuals with jobs, and most of them don’t qualify for social services or income supports.

The United Way’s ALICE report calculates the cost of living for each county, and takes differences in cost of living into account. In Marion County, a single individual living needs $18, 396 a year, or 9.20 an hour, to survive; a family with two adults, an infant and a preschooler needs $51, 972, or 25.99 an hour. In Indiana, 68% of jobs pay less than $20/hour, and three-quarters of those pay less than $15/hour.

If you are interested in learning more about ALICE families and their demographics, I encourage you to go to the website of the Indiana Association of United Ways and access the entire report. It’s an eye-opener.

As long as we are talking about Indiana, let me share some additional statistics, courtesy of the Indiana Institute for Working Families:

  • Indiana has a “jobs deficit” of 108,400—that’s the number of additional jobs we need due to population growth
  • The Annie E. Casey Foundation ranks Indiana 30th in child well-being—we’ve slipped two slots since 2014.
  • With respect to the status of women, Indiana ranks dead last overall. We are 39th in women’s employment and earnings, and 37th in poverty and opportunity.
  • Indiana’s minimum wage is not sufficient to support even a single adult in any county in the state, but Indiana’s legislature refuses to raise the wage and prohibits cities and counties from doing so. The state has ranked 38th in personal income for the past three years, and 33d in income growth last year. Even accounting for our relatively low cost of living, personal income in the state is 5.5 points below the national average. We have the tenth most regressive state tax system and the 2d highest sales tax.
  • Looking at inequality, rather than just poverty, people in the top 1% in Indiana make on average $717,688 a year, or about 16.5 times the state’s average income of $43,426. The much-hyped 2013 tax cut saved the wealthiest Hoosiers an average of $1181 and the lowest-income Hoosiers an average of $10 each.

If over a third of Indiana households can’t make ends meet, there must be programs to help them bridge the gap, right?

Wrong. In fact, the number of households receiving government aid—what most of us call welfare—totaled about 9,000 families in 2014—and emergency payments from local welfare offices like the Township Trustees actually declined by 13%.

Just to sum up: the total gap between sufficiency and actual income—that is, the amount of money that would be needed every year to bring all Hoosier households up to the ALICE threshold—was $34.2 billion in 2014. Those households earned $15.8 billion. They received $15.1 billion in combined charity and government assistance. That left a gap of $3.3 billion dollars. It would take 3.3 billion dollars of additional wages or government welfare or charitable support to bring all Indiana families up to subsistence.

The numbers are staggering, but they only tell part of the story. The human costs of poverty and inequality to both individuals and society are immense. A White House study released in May of this year found that raising the minimum wage reduces crime by 3 to 5 percent. Education research has demonstrated that poor classroom performance is affected more by poverty than any other factor. There are a number of other social pathologies that are caused or exacerbated by poverty.

Speaking of education—Awhile back, the Washington Post’s Wonkblog reported on an experiment in Ft. Lauderdale that holds so many lessons—not just about inequality, but about institutional and unintentional racism, the waste of human capital, and the human difficulty of seeing things that lie outside more comfortable worldviews.

In 2003, the head of the school system’s gifted program asked her staff to make a map showing where every gifted student lived in Broward County, Fla. She called the result an “atlas of inequality.” All of the then-identified gifted students were from the suburbs and wealthier communities, where parents were more involved in education. The map was virtually void in other areas.

The map convinced the district to work harder to identify gifted children from impoverished areas, and in 2005, it began giving a short test to all students in the second grade. Children who scored well on the test were then evaluated to determine whether they should be enrolled in the system’s gifted program. The district ended up identifying an additional 300 gifted children between 2005 and 2006—and 80 percent more black students and 130 percent more Hispanic students entered gifted programs in third grade.

The school district had previously relied upon referrals by teachers—a system used by many, if not most, school districts around the country. (Not, I am pleased to report, in IPS, which uses a system similar to the one now used in Ft. Lauderdale.) And that’s the problem: those programs amplify inequality because they disproportionately recruit children from high-income families — another example of how opportunity accrues to those who are already privileged.

This is how systemic bias operates. People who dismiss the notion of structural racism or advantage do so because they see bias as intentional, and success or failure solely as a measure of individual effort and/or merit. (Calvinism again!) They look around and no one is burning a cross on that black family’s lawn, or otherwise displaying hurtful antisocial behavior, so they draw the not-unreasonable (albeit inaccurate) conclusion that bias is absent.

The Ft. Lauderdale teachers who failed to identify precocious poor children weren’t bigots—they wouldn’t have been in those classrooms, working with poor children, if they were. But like most of us, they’d been socialized to connect intellectual capacity to certain markers of behavior—markers that children from disadvantaged families are less likely to exhibit.

A similar phenomenon occurs when businesses have job openings. Positions tend to be filled through “networking.” The word gets out to people already in those networks, who mention the opportunity to their friends, and to people with whom they feel comfortable. People who look and sound and act like them. It isn’t intentionally nefarious—it’s human. It’s the way the world works.

But in the aggregate, these otherwise innocent social networks operate to keep advantage where it is, and to exclude access to those whose talents and abilities are less recognized, because they are expressed differently. There are the “old boy’s networks” that continue to constrain women’s progress, the continuing friendships of alumni from elite schools disproportionately populated by the offspring of wealthy families, and the many other “communities of interest”—professional or social—where, as the old saying goes, “birds of a feather flock together.”

America cannot afford to lose the contributions of talented citizens simply because that talent comes from unfamiliar places.

Poverty and inequality also have society-wide economic ramifications. Research studies confirm that economic inequality and economic growth are inversely related.  Economies with less inequality grow more strongly than those with more.

When you think about it, this makes sense. The American economy relies on consumer demand to fuel economic growth. Moderate levels of inequality don’t matter, so long as there is a sufficiently large middle-class with sufficient disposable income to spend. So long as those with less still have “enough”–defined as income left over after life’s necessities have been covered–and so long as they continue to purchase goods and services with that income—the economy can be expected to grow.

However, when the distribution curb is what economists describe as “bimodal,” with lots of people barely eking out a living and a few others sitting on piles of money, the economic picture changes. The poor have little or no disposable income with which to purchase goods and services, and the rich can meet their needs and desires without depleting a significant portion of their assets. (For that matter, there aren’t enough rich people to drive economic growth, even if they spent lavishly.)

When people don’t buy, manufacturers don’t make. When manufacturers don’t make, they don’t hire workers (or keep the ones they have). Retailers close or downsize. Eventually, the assets held by the 1% lose their value, which is why the politics of greed are so shortsighted.

There is another consequence when the degree of inequality reaches or exceeds levels seen during the Gilded Age—as it is now. That consequence is social and political instability. Political scientists tell us that countries with deep divisions between rich and poor experience mass upheavals and various social pathologies. A wealthy friend of mine once remarked that he’d prefer paying higher taxes to watching angry mobs take to the streets, or worrying about someone kidnapping his children for ransom.

We are already seeing significant evidence of social discontent from young people who see income inequality as profoundly immoral—especially in a country that maintains a huge and expensive military, and lavishes gigantic salaries on the so-called “banksters” and others in the 1%. There was a reason so many young people flocked to the message and campaign of Bernie Sanders.

A lawyer I worked with once told me there is really only one question, legal or otherwise: what should we do? If poverty and income inequality are as corrosive to our social fabric and political health as most observers think they are, how can we ameliorate them? What should we do?

In the short term, we should certainly support efforts to improve America’s frayed social safety net. Things like expanding family and medical leave and paid sick days, improving benefit portability and similar measures will make a difference—and when someone is struggling, every little bit helps.

We should also raise the minimum wage. Economists at Goldman Sachs recently conducted a simple evaluation of the impact of state minimum-wage increases by comparing 13 states where the minimum wage had increased with states where it didn’t, and found that—despite preconceptions– the states where the minimum wage went up had faster job growth than the states where it didn’t. The Bureau of Labor Statistics reported the same pattern: employment growth was higher in states where the minimum wage went up.

This is counter-intuitive, I know. It has always seemed logical that raising wages would depress job creation.  What that simple logic missed, however, were the many factors other than wage rates that influence the decision to hire or fire employees. The Goldman Sachs study joins an overwhelming body of evidence that the simple equation—however logical—is wrong. When low-wage workers are paid more, they spend more, and that spending generates job growth.

It isn’t only low-wage workers who would benefit from a higher minimum wage, either: American taxpayers would save a bundle. We currently provide $6.2 billion in public assistance, food stamps, Medicaid and the like to low-wage Walmart workers, and another $7 billion to McDonald’s employees, among many other large, low-wage employers. Those subsidies are particularly galling, because we taxpayers are in effect paying a portion of the wages of those employees, and enriching the shareholders of those huge corporations.

We can talk a lot more about the minimum wage and other near-term measures we should investigate, but let me end by talking about a longer-term idea that is beginning to get some traction.

Most of us understand that without economic security, guarantees of personal, political and religious freedom aren’t worth much. If your day-to-day existence is consumed with the struggle for survival, the fact that you have freedom of speech—or even the vote—is small comfort.

Several countries have considered proposals for a guaranteed basic income. There are a number of variations, but the basic idea is that government would eliminate the various forms of social welfare that are currently in place, and would instead send each citizen an annual amount sufficient to cover basic living expenses.

A practical argument for a guaranteed income is efficiency—there would no longer be a need for the massive bureaucratic apparatus currently required to administer social welfare programs, no need to determine eligibility under the different standards for different programs. (Many years ago, conservative economist Milton Friedman proposed something similar: a “negative income tax” that would require payment from those earning above a certain amount, and send remittances to those below that threshold.)

Social science scholars see other benefits. As automation steadily displaces what were once middle-class jobs, receipt of a stipend sufficient to cover basic living expenses would allow people to go back to school, or to train for alternative employment, or work part-time. It would give new mothers—or fathers—the option to take time off to care for newborns; it would similarly facilitate caretaking for gravely ill spouses or parents.

We also might expect that with a lessening of abject poverty, a number of the social ills that accompany privation would improve, saving tax dollars.

As positive as all that sounds, however, there are reasons why efforts to implement a guaranteed income have fared badly. In Switzerland last year, a basic income proposal on the ballot was overwhelmingly defeated; in 2013 ,the German Parliament debated a similar proposal and rejected it.

The first—and most obvious—negative is cost. Although economists argue about the actual net cost, after savings from eliminating our current expensive patchwork of social programs—any such approach would undoubtedly require tax increases. In the United States, where taxes have become a dirty word even when they are earmarked to support basic services, this fact alone probably presents a politically insurmountable barrier.

There is also the question whether receipt of a guaranteed income, no matter how modest, would reduce the incentive to work. There is very little empirical data on that issue; however, there was an interesting experiment in Manitoba, Canada, during the 1970s, called Mincome. It was intended to assess the social impact of a guaranteed annual income, including whether it would be such a disincentive, and if so, to what degree. Apparently, only new mothers and teenagers worked substantially less. Mothers with newborns stopped working because they wanted to stay home longer with their babies, and teenagers worked less because they weren’t under as much pressure to help support their families, which resulted in more teenagers graduating. However, participants knew the project was not permanent, and it is impossible to know whether—and how—that knowledge affected the results.

There are a number of other legitimate concerns about so drastic a shift in the way we discharge our obligations to our fellow-citizens.

Given American cultural attitudes that valorize work and demean those who rely on public assistance (thanks, Calvin!), it’s safe to say that the United States is unlikely to institute a guaranteed income program (it certainly won’t happen in my lifetime). But even if a guaranteed income isn’t the answer, it is worth asking what it should mean to be a member of a political community. What are the reciprocal obligations of the citizen and the state? If membership has its privileges, what should those privileges be?

I’ll leave that question to you. Thank you.

Beyond the Bumper Stickers

“It’s more complicated than that” is a sentence I probably mutter in my sleep. (My students  think I repeat it on a daily basis, sort of like a mantra.)

In a New York Times op-ed a couple of weeks ago, Miriam Sapiro, who was a deputy U.S. trade representative from 2009 to 2014, addressed one of the many subjects that is more complicated than either free-trade purists or knee-jerk opponents of markets understand, in “What Trump and Sanders Get Wrong About Free Trade.”

After noting that the United States enjoys a 200 billion dollar trade surplus, she points out that unless we continue working to pry open foreign markets for American goods and services, we will have a hard time creating more jobs: Nearly all of the world’s population lives outside our borders.

The Department of Commerce estimates that every increase of $1 billion in exports sustains nearly 6,000 jobs, and that export-related jobs pay on average 18 percent more than jobs focused on the domestic market.

We Americans have an unfortunate tendency toward “either/or” arguments. Trade is good or bad. We are for it or against it. But this is one of those areas in which the question is not–or should not be–yes or no, but how. What distinguishes a good trade agreement from a bad one? How do we ensure an equal playing field? If domestic manufacturers have to abide by rules protecting the environment and ensuring fair labor practices, for example, other parties to these agreements should be bound by similar constraints. All trade agreements are not equal.

And we need to recognize that there are multiple causes of our economic problems.

Rather than blaming international trade for economic woes, we need to have an honest conversation about what the United States must do to strengthen its economy. More than 20 percent of American children today live in poverty. Our educational system, once the envy of the world, now ranks in the bottom half of much of the developed world. The tax system rewards companies that exploit loopholes, infrastructure is crumbling and training programs lack the kind of apprenticeship and credentialing opportunities that Germany and other major economies offer…
Of course it is easier to score points by denouncing trade than to tackle the tough issues, but such demagogy ignores the roots of economic insecurity and inequality.

It’s handy to have a villain to identify, but the emotional satisfaction of identifying someone or some thing as the “bad guy” rarely translates into a solution to the problem at hand.

It is also a mistake to think that positions on trade policy break down along neat party lines. As we learn from Political Animal, 

U.S. Conference of Mayors (which is overwhelmingly Democratic), endorsed TPP. The reason, as Ron Brownstein pointed out, is clear.

New data released May 13 by the Brookings Institution’s Metropolitan Policy Program helps explain the mayors’ tilt toward trade…Brookings found that fully 86 percent of U.S. exports now originate from urban areas. Moreover, exports drove more than one-quarter of all metro area economic growth from 2009-2014.

I think it was H.L. Mencken who said “For every complex problem there is an answer that is clear, simple, and wrong.”

Student Debt is a Very Big Problem

The Consumer Financial Protection Bureau recently estimated the amount of total student debt at nearly $1.2 trillion. (Yes, that’s trillion with a “t”) and reported that federal student loans alone make up more than $1 trillion of that amount, with private loans making up the remaining $165 billion.

But as the website Vox reports, actual debt incurred for college is probably higher. Some students or parents use credit cards, loans from retirement plans, or home equity lines of credit to pay tuition, fees, and living expenses. Those financial products aren’t included in the $1.2 trillion estimate.

The total amount of student debt in the US has more than tripled in the past 10 years, as more students attend college and a higher proportion of those students take out loans. Thanks to rising costs, they’re also borrowing more than students did in the past.

The staggering amount of student debt isn’t just bad news for the students anxious to find good paying jobs that will allow them to repay those loans; it’s a huge drag on the economy. Student loan borrowers are less likely to buy a car or a house, in part because they can’t save for a down payment. They have less disposable income for consumer spending. Their credit scores are worse.

And since the students taking on debt tend to be from needier families, the student loan crisis is yet another structural impediment to greater income equality.

There has to be a better way.

Many countries have either free higher education, or extremely low tuition and grant aid: Germany, Denmark, Finland, Iceland, Norway, Sweden, Mexico and Brazil. Other countries that don’t offer free higher education have instituted small student fees. Australia and New Zealand have a system tuition and fees, but student loan repayment is entirely based on later earnings; student borrowers who make less than $50,000 a year owe zero monthly payments, and never pay more than 8 percent of income.

If they can do it, so can we.

Remember when America was the land of opportunity and social mobility wasn’t just a story we told each other?

Culture War Governor

I see from the morning news that Mike Pence is promising to attack Indiana’s economic woes by focusing like a laser on “protecting marriage.” If the nexus between those things seems a bit…shall we say “attenuated”…he explains that children of intact marriages are less likely to live in poverty.

That’s true enough. The question is whether we elect a governor to address a long-standing social issue with complex causes rooted in social change–social change a Governor is unable to affect (or evidently, in Pence’s case, understand), or whether we elect a chief executive of our state to manage budgets, pave roads, maintain state parks and improve underperforming social service agencies. Those mundane tasks clearly do not interest Mr. Pence.

We all recognize that Pence’s interest in the health of the institution of marriage rests less on his belief that intact families will lead to a better Indiana economy than on his determination to keep GLBT folks from forming those families. If Pence really cared about the health of families, he wouldn’t be waging war against Planned Parenthood, opposing access to contraception, or even more adamantly opposing the Affordable Care Act.  The availability of affordable health care and family planning do have a demonstrable impact on families. Same-sex marriage just as demonstrably does not.

If Pence’s unctuous concern for the state of Hoosier marriages actually extends to the prevalence of divorce, how does he plan to insert the Governor’s office into that issue? Will he make it more difficult for the woman leaving an abusive spouse to exit that relationship? Work toward restrictive divorce policies that keep children in intact, unhappy homes?

There really are public policies that are family-friendly, that support women and children and ameliorate some of the predictable effects of single-parenting. Income supports and social services for impoverished children would make a real difference. SChip has been a godsend to thousands of them. But those aren’t policies Mike Pence has ever supported. In his case, “concern for marriage” is just a euphemism for policies that discriminate against gay people.

If Pence becomes Governor, it is going to be a long four years.

What He Said

A relatively simple statement from the President’s State of the Union speech last night deserves emphasis. After reminding Americans of the economic situation when he assumed office, when the country was bleeding jobs and reeling from the collapse of the housing bubble, Obama reported

“In the last 22 months, businesses have created more than three million jobs.  Last year, they created the most jobs since 2005.  American manufacturers are hiring again, creating jobs for the first time since the late 1990s.  Together, we’ve agreed to cut the deficit by more than $2 trillion.  And we’ve put in place new rules to hold Wall Street accountable, so a crisis like that never happens again.

The state of our Union is getting stronger.  And we’ve come too far to turn back now.  As long as I’m President, I will work with anyone in this chamber to build on this momentum.  But I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place.”

Americans have a notoriously short attention span, and a wildly inflated conception of Presidential power. Republican prospects depend upon those characteristics. If the GOP is to recapture the Presidency, Americans must forget how we got into this mess, and how long it took for George W. Bush to dig the hole we find ourselves in. We also have to forget how he did it–what those “policies that brought on the economic crisis” were.

There may have been some unrecognized underlying weaknesses, but economists of all political persuasions agree that Bush inherited a healthy economy, and a shrinking national debt. It took him eight years, but Bush destabilized and weakened that economy, and dramatically increased the debt.

Let’s just look at the three most damaging policies Bush pursued. First, he refused to pay for the wars he so recklessly waged  (wars that cost several times the estimates given by then-budget director Mitch Daniels). Second, he actually reduced taxes on the wealthy–thus exacerbating the widest income gap between rich and poor since the gilded age. (Those tax breaks were justified as “job creation” measures, despite the fact that such cuts have historically failed to create jobs.) And third, he eviscerated government regulation, allowing banks and other big businesses to operate with lawless impunity in the serene belief that the market would provide all necessary discipline.

There were plenty of other policies the Bush Administration pursued that were wrong-headed and harmful– failure to address environmental issues,  cowboy unilateralism in foreign policy, an assault on civil liberties–but the “big three” did the most widespread damage and make it more difficult to address the others.

A lot of Americans who acknowledge all of this nevertheless believe that it should all be turned around by now. Why, Obama has had three years! These are the folks who must think we elect a king, rather than a President. In the real world, however, Presidential power is more constrained. The President can only do so much–and when those who control Congress refuse to cooperate, refuse even to negotiate, refuse to put the interests of the nation above the interests of their contributors, it shouldn’t come as a surprise that improvement has come slowly.

What’s surprising is that we’ve had improvement at all.