Author Archives: emilykawano

Econ-Utopia: Food for Thought: How Buying Local Food Contributes to Sustainability

By Heidi Garrett-Peltier, CPE Staff Economist

In 1810, 84 percent of the U.S. workforce was employed in agriculture. Today, it’s down to two percent. Thanks to dramatic increases in productivity resulting from advances in technology and the mechanization of agriculture, we can produce a great deal more food with far fewer people than we could 200 years ago. But does this progress come at a cost?

Large-scale corporate farms are able to out-compete small-scale (often family-owned) farms and drive them out of business. Economies of scale (the competitive edge gained by being bigger) enable large corporate farms to produce more cheaply than smaller farms. These large farms are able to invest in expensive machinery and buy their inputs (fertilizer, seed, etc.) more cheaply than small farms, which in turn makes it difficult for small farms to compete. One might think that corporate farming is better for the consumer — large farms, producing more efficiently, can offer products at lower prices. In addition, the vast network of global agriculture allows consumers access to many varieties of foods throughout the year that can not be produced locally.
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Econ-Utopia: Economic Alternatives: Basic Income Guarantee

By Thomas Masterson, CPE Staff Economist

The Basic Income Guarantee (BIG) is just what it sounds like: a guaranteed basic level of income. Most proposals suggest that it be distributed to every adult citizen without regard to income or wealth. BIG would replace all of the social programs currently in place that attempt to reduce or eliminate poverty, such as welfare, unemployment insurance, and Medicaid, with a monthly payment sufficient to lift an individual out of poverty.

Interestingly, this proposal is drawing support from the right as well as the left (leftists have long supported versions of this proposal). Even Charles Murray (think “The Bell Curve”) likes it: he has written a book about it in which he seems to say that he thought it up, calling it “The Plan.” By eliminating the need to monitor for fraud and abuse of the system, BIG would actually be cheaper than our current system of multiple benefits and eligibility criteria. BIG would also get rid of the disincentive to work built into the welfare system–often working for pay leads to a decrease in benefits, making work a less attractive option. And, by allowing people to decide on their own what to use the money for (though Murray’s plan calls for $3,000 of his $10,000 annual grant to be spent for health insurance), BIG would increase efficiency. Lefties like it because it frees people from dependence on employers and gives them more bargaining power to demand good working conditions and better pay.
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Econ-Atrocity: What’s missing from the new bankruptcy laws?

By Helen Scharber, CPE Staff Economist

The new national bankruptcy laws that went into effect in late 2005 prompted a big stir, not to mention a record-setting level of bankruptcy filings just before the laws changed. What is it about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that caused so much controversy? Like its Orwellian cousins the Clear Skies and Healthy Forest Initiatives, this act—whose very title suggests it will enhance consumer protections—does anything but. Indeed, the problems with this new law have much to do with what it does not include.
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Econ-Atrocity: The King is Dead! Long Live the King!

by Jonathan Teller-Elsberg, CPE Staff Economist

After eighteen years holding the reigns of power, Alan Greenspan has finally ended his career as chair of the Board of Governors of the U.S. Federal Reserve, as a result of legal limitations on the length of his term. As the person in charge of monetary policy in the U.S., Greenspan was, by some accounts, the single most powerful person in the world economy. His term as chair coincided with the early 1990s recession that contributed to George H. W. Bush’s loss to Bill Clinton; continued through the longest continuous period of economic growth in U.S. history; included the multi-billion dollar bailout of the Long-Term Capital Management hedge fund in 1998; persisted through the internet-inflated stock market boom and bust as the new century began; and has finished in the current period of feeble recovery.
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Econ-Atrocity: The Chinese Peasants Are Revolting

By Jonathan Teller-Elsberg, CPE Staff Economist

Most of the news we get about China has to do with the actions of the Chinese government or with broad economic trends. Only rarely, it seems, is there much reporting on the actions of Chinese people.

So the Washington Post and China correspondent Edward Cody deserve credit for a series of articles he’s written for the paper over the past year. Cody’s articles have described the struggles of Chinese factory workers and peasants as they face various abuses at the hands of factory owners and corrupt local officials (sometimes one and the same people). He reports that the Chinese government believes that the core cause for the increase in spontaneous mass protests across the country is growing economic inequality.

In the southern Fujian province, thousands of peasants have been protesting the seizure of their land, which is often converted to industrial use. Those Cody talked to have received hardly any compensation for the land, and they suspect that the local officials who should be distributing compensation payments have instead used the money to make investments in factories. Few of the peasants have been able to get jobs in the new factories, something that was promised when the land was seized.

In next-door Guangdong province, workers at shoe factories have staged spontaneous strikes, including one in which hundreds of workers ransacked company facilities. There have been numerous walkouts at the shoe manufacturers in the past couple years. The workers are angry about low wages, limited time off, and lack of communication with managers.

Farther north, in the town of Huaxi, villagers fed up with years of polluted air and water and stonewalling by government officials created a protest camp outside the gates to an industrial park. Despite a police raid to shut the camp down, the protesters increased in number. When a large force of police and civilian assistants returned on April 10th, some 20,000 villagers responded. A fierce street battle ensued and the police and city officials were forced to retreat from the town. The protest camp remained for another month and a half, until government officials agreed to shut down the industrial park. However, those suspected of being leaders of the protest movement remained on police wanted lists.

In the Anhui province, the beating of a young man by bodyguards of a businessman sparked a spontaneous riot in which approximately 10,000 city residents torched police cars, threw rocks at anti-riot troops and looted a grocery store after the owner was seen providing water to the police.

Though each of these was an isolated incident on its own, they are part of growing pattern of angry resistance by China’s poor–whether from peasant farms or sweatshop factories–to the Communist Party’s cozy alliance with capitalist business. A minister for public security in China estimated that 3.76 million people participated in what he termed “mass incidents” throughout the country during 2004, and that the frequency of these incidents has been increasing.

The government has become very concerned, both because this expression of people power threatens the stability of Communist Party control and because it could undermine the party’s goals for further economic development in the capitalist mold. The spread of cell phones and the internet are allowing unofficial news of resistance to reach a larger Chinese audience, despite the efforts of government censors in the official media. Even the state-run media has begun reporting that the root cause of the recent unrest is the widening gap between rich and poor in the country. Perhaps conveniently, these reports downplay the idea that protesting citizens could be angry about the political structure of one-party rule. After all, much of the economic development that has been part of China’s shift to capitalism and the growing rich-poor gap has relied on collusion between local government officials and private businessmen.

Sources:

Articles by Edward Cody in the Washington Post:

“China’s Land Grabs Raise Specter of Popular Unrest; Peasants Resist Developers, Local Officials,” 10/5/04;

“In China, Workers Turn Tough; Spate of Walkouts May Signal New Era,” 11/27/04;

“For Chinese, Peasant Revolt Is Rare Victory; Farmers Beat Back Police In Battle Over Pollution,” 6/13/05;

“A Chinese Riot Rooted in Confusion; Lacking a Channel for Grievances, Garment Workers Opt to Strike,” 7/18/05;

“A Chinese City’s Rage At the Rich And Powerful; Beating of Student Sparks Riot, Looting,” 8/1/05;

“China Grows More Wary Over Rash Of Protests; Cell Phones, Internet Spread The Word, Magnify Fallout,” 8/10/05;

“China’s Rising Tide of Protest Sweeping Up Party Officials; Village Chiefs Share Anger Over Pollution,” 9/12/05;

“China Warns Gap Between Rich, Poor Is Feeding Unrest,” 9/22/05;

“China Promises Equitable Growth,” 10/1/05;

“China’s Party Leaders Draw Bead on Inequity,” 10/9/05;

“Beijing Pledges to Focus on Income Disparities,” 10/12/05.

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

Econ-Atrocity: Blowout: “Good Pay or Bum Work!”

Adapted from Understanding Capitalism: Competition, Command, and Change, 3rd Edition by Samuel Bowles, Richard Edwards, and Frank Roosevelt, 2005

Firestone recalled 14.4 million of its tires in August 2000 due to construction flaws resulting in “tread separations” likely to cause blowouts. A month later the National Highway Traffic and Safety Administration announced that Firestone tires were under investigation in cases involving 271 fatalities and more than 800 injuries. As the extent of the public relations debacle became clear, the world’s largest tire manufacturer—officially Breakstone/Firestone since its purchase in 1988 by a giant Japanese tire producer—considered dropping the Firestone name. But this was more than an embarrassment to the company. It was a mystery worthy of a modern day Sherlock Holmes: how had Firestone put on the road so many blowouts waiting to happen?

Two economists (associated, ironically, with the industrial relations section of the Firestone Library at Princeton University) have uncovered clues leading them to a single plant during a two-year period in the mid-1990s. The apparent “scene of the crime,” a Firestone plant in Decatur, Illinois, was one of three plants making the type of tires that were recalled (the others were in Wilson, North Carolina, and Joliette, Quebec). Tread separations on tires built at the Decatur plant during 1994 to 1996 were much more likely than on tires built at that plant during other years or on tires built in any year at the Joliette or Wilson plants.

What was special about Decatur during the mid-1990s? The answer, it appears, is labor strife.

Early in 1994 the company proposed increasing shifts from 8 to 12 hours and operating the plant 24 hours a day, with workers alternating night and day shifts. Firestone also wanted to pay new workers 30 percent less and to reduce pension and other benefits. In April 1994 the 4,200 employees went on strike. Firestone replaced the striking workers at much lower pay, subsequently announcing that the replacements would be permanent and that the strikers could seek reemployment at reduced pay when the need for additional work arose.

Over the next year many took up the offer, but under highly difficult conditions. According to a union account: “Forced to work alongside scabs who had taken their jobs . . . the strikers were assigned to the hardest jobs on the worst machines, rather than the jobs they had held for 10, 20 and even 30 years. The company supervisors had a field day harassing, intimidating and firing union members for the smallest infractions.” Building quality tires may not have been the top priority for workers—or, it seems, for supervisors either.

The economists conclude their study: “Unless another factor can be found that explains the sudden rises in defects in tires when Breakstone Firestone demanded contract concessions . . . and again when replacement workers and recalled strikers worked side by side, we think the weight of the evidence points to labor strife as being at the root of many of the defective tires.” They estimate that faulty tires produced at the Decatur plant during the years of strife accounted for at least 40 deaths, and the number would have been twice that had it not been for the recall.

A century ago the International Workers of the World (IWW), a radical American labor group, demanded, “A fair day’s pay for a fair day’s work” and pointedly warned, “good pay or bum work!” Firestone would have saved lots of money (and lives) had they recognized the force of these demands.

Source:

Alan Krueger and Alexandre Mas, “Strikes, Scabs, and Tread Separation: Labor Strife and the Production of Defective Bridgestone/Firestone Tires” (Industrial Relations Section, Firestone Library, Princeton University, 2002) http://www.irs.princeton.edu/pubs/pdfs/461_revisedB.pdf.

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

Econ-Atrocity: Social Security: A Mythical Crisis

(Part two of two. See part one.)
Professor Gerald Friedman, University of Massachusetts at Amherst

There is no Social Security crisis. President Bush warns that we face a “˜crisis’ in Social Security to justify transforming the system. Hoping to rally the young for an inter-generational civil war, President Bush admonishes young Americans that they have nothing to lose from Social Security reform, or even repeal, because they will never receive benefits from a Social Security system that is bankrupt under the weight of eleven trillion dollars in unfunded liabilities.

Were there a serious crisis, we would be irresponsibly careless to reject necessary action. But, first we should carefully review whether there is a crisis.

“Thirteen years from now, in 2018, Social Security will be paying out more than it takes in,” declared President Bush in his State of the Union address. In 2018, the Social Security Administration (SSA) predicts that Social Security will pay out about $16 billion more in benefits than it receives in payroll taxes. But this is irrelevant. By that year, the Social Security system will have accumulated a Trust Fund amounting to $3.6 trillion that will generate $206 billion annually in interest income, and the Trust Fund will continue to grow after 2018 because interest income and payroll taxes will together exceed benefits paid out.

Social Security will run out of money by 2042, or is it 2052? Using rather pessimistic assumptions, the SSA estimates that benefits paid will exceed interest income plus payroll taxes after 2020, and some benefits will then be paid from the accumulated Trust Fund. The SSA predicts that benefits will continue to be paid in this way until 2042, when the accumulated fund will be exhausted and ongoing payroll taxes will cover about 73% of benefits. This date is in question; the Congressional Budget Office (CBO), appointed by Congress’s Republican leadership, predicts that the fund will last another ten years, until 2052.

If there is any substance to the President’s warnings of crisis, it is in 2042 (or 2052), when Social Security will no longer be able to pay all its promised benefits from established revenue sources. But this dispute over whether the Social Security Trust Fund will last another 37 or 47 years, a dispute between two conservative bodies appointed by our nation’s Republican leaders, is a sign of just how tenuous are these arguments that Social Security faces a crisis. The SSA makes its more pessimistic estimates by assuming that economic growth will slow dramatically over the next 40 years and wages will rise by only 1.1% a year. The CBO adds 10 years to the system’s financial stability by assuming that wages will rise by 1.2% a year. But this is still well below the 1.7% rate of increase in real wages for most of American history. If wages rose at this historical rate, then the trust fund would never be exhausted.

Even if the Trust Fund is exhausted in 2042, or 2052, there will be no crisis. The crisis-mongers base their arguments on a fundamental misconception about Social Security. A private pension must accumulate enough reserves during people’s working lives to pay benefits when they retire. But Social Security is not a private pension, it is social insurance guaranteed by the faith and credit of the United States government including its ability to tax. The real test of Social Security’s sustainability is the ability of the United States to raise revenues sufficient to pay benefits.

The real test of our ability to sustain Social Security is the strength of our economy. Rather than answering this straight-forward sustainability question, crisis-mongers prefer to throw around large and scary numbers pulled out of context. Consider the frequently repeated warning that the elderly population will double by 2060, to 80 million. Or, there’s the warning that there will be just two workers per retiree in 2030, as opposed to the three workers per retiree today. True, but the population of all age groups is growing, and the decrease in the ratio of workers to retirees will be slower than what we have already experienced since 1950. Moreover, the increase in the retiree population will occur at the same time that the population of other dependents ““ children under 18 ““ will be shrinking; this means that the overall dependency ratio will barely increase.

The real failure of the crisis-mongers is their peculiar loss of faith in the American economy. In even the most pessimistic estimates of the SSA and the CBO, the increase in the size of the elderly population will be considerably less than the increase in labor productivity. Over the next 55 years, productivity will more than double, allowing a relatively smaller labor force to support a growing population of retirees ““ in the same way that a shrinking farm labor force allows us to be fed by only 1% of the population.

The ultimate test for the sustainability of Social Security is the same as the test we always face: Can our economy grow enough to support our population? It is ironic that our conservative Republican leaders show so little faith in American capitalism. It would be worse than ironic if we let their loss of faith lead us to adopt policies that undermine one of our most successful social programs.

Next: Social Security privatization: a bogus cure for an illusory problem

Sources:

Dean Baker and Mark Weisbrot, Social Security: The Phony Crisis (Chicago, 1999).

Peter A. Diamond and Peter R. Orszag, Saving Social Security: A Balanced Approach (Washington, D. C., 2004).

Robert Kuttner, “What Social Security Crisis?” The American Prospect: Online Edition (Dec. 23, 2004).

Mark Weisbrot, 2018, Center for Economic and Policy Research, February 3, 2005

Economic Policy Institute, Social Security Issues Guide

The Social Security Network

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

Econ-Atrocity: Bush’s fundamental error: Social Security is insurance, not a pension

(Part one of two)
By Professor Gerald Friedman, University of Massachusetts at Amherst

President Bush is fundamentally wrong about Social Security. His proposal shows he thinks Social Security is a pension plan ““ a form of individual savings towards retirement. But Social Security is not a pension plan. It is a social insurance program: it provides benefits to individuals according to their situation, rather than strictly according to their contributions.

Social Security is insurance against some of the misfortunes that may afflict us: old age, disability, and death. The Social Security Act of 1935, which created Social Security, also created other social insurance programs ““ like unemployment insurance and Aid to Families with Dependent Children. Since then, programs have been established to encourage workplace pensions and private savings, like 401K plans and Individual Retirement Accounts. But Social Security has remained apart because it is not a savings or pension plan; it is a program where we all protect one another against the maladies and afflictions of life.

Seen as an insurance program, Social Security should be evaluated according to different criteria than one would use to evaluate a pension plan. Some economists and administration officials have criticized Social Security because of the low rate of return some retirees receive for their lifetime contributions. By the same logic, they might criticize my homeowner’s insurance plan because after 16 years, I have paid over $8,000 into it without receiving any benefits. Have I wasted my money on a bad investment? No ““ because it’s not an investment, it’s an insurance plan.

The same holds for Social Security. Unlike pensions or savings plans where individuals look to maximize their expected returns, we look for something different from insurance: adequacy and protection. We ask: will the insurance we have provide enough coverage? Will it be there when we need it? And does it come at an excessive premium?
Judged by these criteria, Social Security has been a great success. Consider:

* Social Security protects the elderly from the risk of outliving their means. Unlike savings or many pensions, the elderly cannot outlive their Social Security. Social Security accounts for 40% of the income of the elderly, and the proportion rises with age. Over 90% of elderly Americans receive Social Security benefits; by contrast, only 42% receive pensions and 67% receive investment income.

* Social Security lifts millions of older Americans out of poverty. Unlike pension benefits that depend on past contributions and earnings, Social Security benefits are progressive to favor the poor. For the lowest wage workers, benefits replace 70% of wage income, and for nearly a third of these, Social Security accounts for over 90% of income after retirement. For the highest wage workers, benefits replace just 23% of wage income. Without Social Security, 48% of people over age 65 would be in poverty; Social Security reduces that figure to barely 8%.

* A majority of Social Security recipients are women. Because women live longer than men, have generally earned less than men, and are less likely to have a pension, they are more vulnerable to exhausting their savings ““ so they depend more on Social Security than do men. Women also benefit from Social Security’s survivor benefits and provisions giving home-makers benefits equal to half the benefits provided to spouses who worked outside the home.

* Social Security also provides disability benefits to over 5 million people, including children and spouses of disabled people. In addition, Social Security provides benefits to 11 million children, spouses, and widows of retired workers. Fewer than two-thirds of recipients are retired workers.

* All of this coverage is provided at very low cost. Because Social Security is a universal system, it operates with extremely low administrative costs. Only 0.7% of the program’s income goes to administrative costs ““ half the level of the best mutual funds and a small fraction the rate of private insurance. This leaves more money for benefits.

There are problems with Social Security. Too many workers, especially low wage workers in agriculture and domestic service, are not covered. The disability benefit program has sometimes been too slow in providing benefits, and too restrictive in the categories of disabilities covered. Medical benefits, administered in the separate Medicare program, need to be adequately funded and extended to long-term health care. All of these problems require that this successful program be expanded. There is no justification for abandoning what works.

President Bush objects that he and his wealthy supporters get a bad deal from Social Security. They do: for the affluent, a program that pays more to low wage workers is a bad investment ““ at least if all you consider is the personal return. President Bush and his friends would destroy Social Security because they do not need it. But the rest of us do.

Next: Is there a retirement crisis?

Sources:

Dean Baker and Mark Weisbrot, Social Security: The Phony Crisis (Chicago, 1999).

Peter A. Diamond and Peter R. Orszag, Saving Social Security: A Balanced Approach (Washington, D.C., 2004).

Economic Policy Institute, “Issue Guide: Social Security

Social Security Administration, Income of the Aged Chartbook 2000 (Washington, D.C., 2002).

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

Econ-Atrocity: Keynesian Militarism

By Jonathan Elsberg, CPE Staff Economist

A funny thing happened on the road to liberation. The U.S. military has discovered that high unemployment among Iraqis has a lot to do with the strength of resistance to the occupation. Those parts of Iraq that suffer from the worst unemployment are also the places where militant resistance to the U.S. and its allies is the fiercest. The U.S. military’s reaction is an overt, though painfully slow-going, policy by commanders in these battle-torn areas to create jobs for Iraqis, a sort of “Keynesian militarism.”

Keynesianism, named for British economist John Maynard Keynes (pronounced “Kaynz”), is commonly distilled into the idea that governments can and should pursue “counter-cyclical” policies. These are policies that aim to boost employment and economic activity when the economy is sagging, and to tone it down when it gets overheated, to avoid a disastrous crash. Keynes famously suggested that in the face of an unemployment crisis, the government should do almost anything to create jobs, even going so far as burying money in old mines and hiring people to dig it back up. Read more

Econ-Atrocity {special History of Thought series} Karl Polanyi: Freedom in a complex society

By Yahya Mete Madra

The 1990s saw a revived interest in the writings of Karl Polanyi (1886-1964). Given that capitalism is still in the process of being re-instituted everywhere across the globe; given that the expansions and contractions of capitalism cause endless social dislocation; given that the
recent wave of financial liberalization, labor market deregulation, and privatization has led to grave socio-economic costs; this revived interest should not be surprising. Those who wanted to understand and devise alternatives to capitalism have found it useful to revisit Polanyi’s account of the emergence of capitalism as laid out in his The Great Transformation.

Polanyi maintained that exchange, along with redistribution and reciprocity, has always existed, albeit embedded in different socio-institutional forms. Nevertheless, during the nineteenth century, first in England and then in Western Europe and North America, as land, labor, and money gradually became commodities, the price mechanism and the profit motive, rather than the deliberation and negotiation of diverse social interests and concerns, became the structuring principle of the society. The market society, for Polanyi, was not only undesirable but also was socially and ecologically unsustainable. He believed that the society will develop spontaneous responses to protect itself against the advent of the logic of the markets. Read more

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