Should Young Workers Pass on Pensions and Fight for Social Security?

By Brian Callaci

It’s become increasingly clear that promises employers make to workers about their post-retirement security are eminently breakable. In the public sector, where workers long thought that their pensions were protected by ironclad state constitutions, the courts are now ruling that state and municipal governments, may in fact, abrogate pension obligations.

This trend in the public sector follows by a decade or two the death of pensions in the private sector, where corporate managements and allied shareholders and financiers raided pension funds to finance downsizing, boost accounting profits, and even convert pension promises into cash by financial sleight-of-hand.  Private sector workers found their pensions replaced by “cash balance” plans or 401(k)s. Today, workers outside the upper end of the income distribution find they have little, if anything, in their 401(k)s.

The widespread expectation of decent post-retirement pensions for blue-collar workers dates from collective bargaining agreements won by the CIO industrial unions in the 1940s. The unions were aware of the fragility of pension promises from private employers, however. Thus they fought for the creation and then expansion of Social Security—post-retirement income security as a matter of right rather than a promise from a private employer.

UAW president Walter Reuther insisted that the auto industry pension plan be integrated with Social Security, reasoning that it would give corporations an interest in expanding social security, since employer contributions would decrease as Social Security benefits increased. Unfortunately, and not for the last time, corporate hostility to the welfare state overcame its narrow economic self-interest, and workers themselves turned against the plan when they saw Social Security increases failing to increase their own pension payouts.

Thus defeated, labor unions by-and-large gave up on an expansion of government-provided Social Security and focused instead on improving their own collectively-bargained private welfare states. Workers came to expect their employer-provided private pensions, rather than Social Security, to provide for them in old age. Provision for retirement, like healthcare, was tied to employment, not a right of citizenship.

When corporate America decided it no longer wanted to provide a private welfare state, they abandoned and shredded their pensions with relative ease throughout the 1980s and 1990s. Today only 18% of private sector workers are covered by defined-benefit pension plans, down from almost 40% in 1980.

With pensions all but vanished from the private sector, and the ironclad nature of public sector pensions called into doubt by an increasingly conservative judiciary, one wonders what will become of the current private, employer-provided welfare state. In light of the breakable nature of employer pension promises, it’s becoming increasingly irrational for young workers to accept pension benefits in lieu of wages or other benefits in employment contracts.

Perhaps young workers, who face permanently precarious employment and are losing hope of enjoying employer-provided retirement security, will renew the push to radically expand Social Security. In a hopeful sign, President Obama has just given up his plan to cut Social Security. And going forward, any raising of the retirement age could just be reversed by the next generation of young workers. As a sign of the times, the satirical news website The Daily Mash ran the headline “Young People Just Going to Change Pension Age Back Later.”

Can American Higher Education Be Free?

By Anastasia Wilson

Print

With average tuition at public universities averaging $8,893 and private universities tallying in at a whopping $30,094 (without books, room, and board!), the answer at a glance appears to be an astounding “No! We can barely afford college as it is!” Politically, at a time of fiscal austerity and anti-tax sentiment, the possibility of free public college in the United States seems like a pipe dream at best.

But, there are several compelling arguments for why the answer should actually be “Yes, college can and should be free”.

California union leader Bob Samuels argues on the contrary in his new book “Why Public Higher Education Should Be Free”. Samuels boldly proposes that government spending on higher education be redirected such that tuition and fees at public universities and community college can be free to all students. Further, he suggests that colleges skip the fancy athletics and trim their bloated administration to focus on reducing class sizes and hiring qualified instructors.

Evidence already exists to support some of Samuels’s claims. First, non-educational spending (and especially spending on athletics) at universities and colleges has grown over the past decade. “Country club” universities with climbing walls, state of the art gyms, celebrity sports teams, and apparently even “nap pods” focus their budgets on amenities instead of quality instruction. Former president of Miami University James Garland warned, “I just think there’s a movement these days among universities that are able to do this, to turn themselves into country clubs. But inevitably that comes at expense of academic rigor and the quality of the academic program.” Samuels argues that much of this lavish spending is meant to pacify students grappling with colleges unable to serve them as students, with enormous class sizes, lack of individual academic attention, and crushing student debt burdens.

Second, recent studies have shown that growth in college administrators has ballooned in the past few decades. The New England Center for Investigative Reporting writes that, “The number of non-academic administrative and professional employees at U.S. colleges and universities has more than doubled in the last 25 years, vastly outpacing the growth in the number of students or faculty, according to an analysis of federal figures.” Meanwhile, less is being spent on quality instruction as colleges shift away from tenured full-time professors towards reliance on low-paid, precarious adjunct and graduate student labor. This shift reflects how colleges more and more model themselves after for-profit business; treating students like consumers of country club amenities and administrators like CEOs.

With this in mind, Samuels argues that redirecting resources to the actual productive activity of educating students will be more economically efficient and reduce the bloat, allowing public higher education to be completely free of cost, thereby avoiding the crushing student debt that is now a norm for American students.

Economically speaking, Samuels’s plan might just be feasible (although the cost of rebuilding a broken system would likely be higher than anticipated). Recently, the Atlantic added up the total expenditures that individuals spent on public colleges using Department of Education data. They estimated that in total spending on public colleges was about $62.6 billion- a total less than the total $69 billion spent just on financial aid program, excluding student loans. While this crude estimate excludes non-Federal aid contributing to covering college expenses, the point is that, “starting from scratch, Washington could make public college tuition free with the money it sets aside its scattershot attempts to make college affordable today.”

New ideas and possibilities for free and accessible public higher education are in need, too. A recent report from the Organization for Economic Cooperation and Development (OECD) finds that, “Among the many findings, the United States’ historical advantage in producing higher education graduates has eroded: it ranks fifth in terms of postsecondary education attainment among 25-64-year-olds, but 12th when only 25- to 34-year-olds are considered.”

Free public higher education then may not just be feasible, but also an economic necessity in a globalized economy.

Fisking Greg Mankiw

by Matson Boyd

Countrywide’s Angelo Mozilo, Bear Stearns’ Jimmy Cayne, Lehman Brothers’ Dick Fuld, and Merrill Lynch’s John Thain.

Countrywide’s Angelo Mozilo, Bear Stearns’ Jimmy Cayne, Lehman Brothers’ Dick Fuld, and Merrill Lynch’s John Thain.

Greg Mankiw – the Harvard Economics professor, adviser to George W. Bush, and author of one of the most popular economics textbooks – is still at it trying to make the case that the wealthy deserve to be insanely rich. I would like to write a cogent essay in reply, but Mankiw’s argument is so philosophically ungrounded, so strewn with errors and rife with unchecked assumptions, that I don’t know where to begin a response. Many years ago the writer Robert Fisk pioneered a form of vitriolic point-by-point online writing, now known as fisking. For his piece, Mankiw deserves nothing less than such a Robert Fisk style response.

Here’s Mankiw:

In 2012, the actor Robert Downey Jr., played the role of Tony Stark, a.k.a. Iron Man, in “The Avengers.” For his work in that single film, Mr. Downey was paid an astounding $50 million.

First of all, movie stars are a tiny tiny fraction of the rich. Do you wonder why Mankiw wants to start by talking about actors and not about the majority of the .1 percent, known collectively as Wall Street, who earned their wealth by pillaging the economy and creating a financial crisis?

Does that fact make you mad? Does his compensation strike you as a great injustice? Does it make you want to take to the streets in protest?

Yet, somehow, when I talk to people about it, most are not appalled by his income. Why? One reason seems to be that they understand how he earned it. “The Avengers” was a blockbuster with worldwide box-office receipts of more than $1.5 billion.

 

Philosophers have spilled great quantities of ink debating the question of what people deserve. The standard assumption is that to know what someone deserves, you have to look at what someone does, leaving out structural influences like the size of the market. And for Robert Downey Jr., his huge income is very much the result of the worldwide size of his market. Other structural factors include whether your work is protected from competition and whether your government fights to preserve your intellectual property. Downey Jr. has the world’s most powerful government fighting to preserve his right to income when people watch his movies. This defence of property and prevention of competition is a privilege that the government extends to much of the 1 % – the doctors, corporate lawyers, CEO’s, those holding patents – but denies to ordinary workers. Together the legal climate and the expanding size of the global market have made a situation where Downey now earns several times what he would have earned for the same work just a couple decades ago. Should we conclude Downey now deserves to make several times what he did then?

Consider chief executives. Without doubt, they are paid handsomely, and their pay has grown over time relative to that of the average worker. In 2012, the median pay of C.E.O.’s for companies in the Standard & Poor’s 500-stock index was nearly $10 million. Did they deserve it?

Consider that the actions of many of the CEO’s were criminal, and these CEO’s nonetheless walked away with great fortunes. In Michael Tomasky’s summation of the Institute for Policy Studies report, “Basically, two of every five of America’s highest paid CEOs behaved in a way that, if they were regular workers, would have gotten them fired, disgraced, possibly prosecuted—maybe even jailed.”

Critics sometimes suggest that this high pay reflects the failure of corporate boards to do their job. Rather than representing shareholders, this argument goes, those boards are too cozy with the chief executives and pay them more than they are really worth.

Yet this argument fails to explain the behavior of closely held corporations. A private equity group with a controlling interest in a firm does not face this supposed principal-agent problem between shareholders and boards, and yet these closely held firms also pay their chief executives similarly high compensation. In light of this, the most natural explanation of high C.E.O. pay is that the value of a good C.E.O. is extraordinarily high.

Presumably, the private equity groups are competing for executives in the same market as other companies. Why would a competent self-interested executive want to work for less for a private equity group when he can set his own pay and pilfer a “non closely held” company? And the class of C.E.O.’s now making about $10 million per year earned, in real terms, less than a tenth or twentieth of that a generation ago. Did executives become more deserving?

That is hardly a surprise. A typical chief executive is overseeing billions of dollars of shareholder wealth as well as thousands of employees. The value of making the right decisions is tremendous. Just consider the role of Steve Jobs in the rise of Apple and its path-breaking products.

A similar case is the finance industry, where many hefty compensation packages can be found. There is no doubt that this sector plays a crucial economic role. Those who work in banking, venture capital and other financial firms are in charge of allocating the economy’s investment resources. They decide, in a decentralized and competitive way, which companies and industries will shrink and which will grow. It makes sense that a nation would allocate many of its most talented and thus highly compensated individuals to the task.

I can’t say this part better than Paul Krugman: “Has Greg been living in a cave since 2006? We’re now in the seventh year of a slump brought on by Wall Street excess; we now know the wizardly job of “allocating the economy’s investment resources” consisted largely of funneling money into a real estate bubble, using fancy financial engineering to create the illusion of sound, safe investment. We also know that there is a real question whether hedge funds, in particular, actually destroy value for their investors.”

The Tax Policy Center estimates that in 2013, the top one-tenth of 1 percent of the income distribution, those earning more than $2.7 million, paid 33.8 percent of their income in federal taxes. By contrast, the middle class, defined as the middle fifth of the income distribution, paid just 12.4 percent.

So, by delivering extraordinary performances in hit films, top stars may do more than entertain millions of moviegoers and make themselves rich in the process. They may also contribute many millions in federal taxes, and other millions in state taxes. And those millions help fund schools, police departments and national defense for the rest of us.

Welfare states in most European nations are paid for by middle class taxation, the reason we can’t do that in the United States is because gains from economic growth have gone almost exclusively to the rich, and middle class incomes have been stagnant for decades.

Stephen Jay Gould once said of Einstein: “I am, somehow, less interested in the weight and convolutions of Einstein’s brain than in the near certainty that people of equal talent have lived and died in cotton fields and sweatshops.” How many people in the world, if given the chance, would have given a better performance than Robert Downey Jr.? How many would have made a better argument than Mankiw?

 

Whose Recovery?

by Jerry Friedman

Whose Recovery

There is a story that when the late union leader Walter Reuther was given a tour of a GM plant, a manager introduced him to a set of the company’s new robots.  The manager challenged Reuther to say how he would organize the robots into the UAW.  The union leader supposedly responded by asking: how will General Motors sell cars to the robots?  While American unions have failed to organize the workers in the new economy’s factories, its capitalists seem to have figured out a good answer to Reuther’s question.

 

We shouldn’t be surprised that conservative politicians and orthodox economists are calling for the Federal Reserve to end its program of monetary ease and for the Federal government to end its program of extended unemployment insurance.  Believing in Say’s Law and the virtues of unregulated markets, they have never been comfortable with state action to help the unemployed; instead, they have long argued that the only proper role for government is to protect price stability and the integrity of banking system.

 

What should surprise us is that so few in the business community are pushing back against these ideologues in support of policies to bolster economic growth and employment.  Robert Reich asks whether capitalists and managers have forgotten the basic Fordist compromise, in which businesses rely on affluent workers to consume their products?[1]  If a rising tide lifts all boats, don’t capitalists benefit when unemployment falls and workers have more to spend?  And shouldn’t they support policies that bring the tide in?

 

They don’t because American capitalists have learned to profit from recession.  They have so well insulated their economic fortunes from the rest of us, that they no longer depend on rising wages and growing effective demand to maintain profitability.  The “recovery” from the Great Recession of 2008 has been different from past recoveries, because it has been led by profits, which have grown even though economic growth has been relatively slow, and employment and wages have stagnated.  Four years into the “recovery,” the GDP has grown at an anemic 2.4% per annum, the slowest growth rate of any post-war recovery and less than half that of the recovery in the 1960s.  Since the recession bottomed out in 2009, job creation has been only a third the rate of past recoveries.  Compared with past recoveries, this one is short 8 million jobs and the employment ratio, the share of the adult population with jobs, has fallen back to the level of the early 1970s, down 5 percentage points from 2008.

 

Those who call for the Federal Reserve to reverse course and urge Congress to cut programs to help the jobless cite the declining unemployment rate, which is down a third from its peak in 2009.  While declining unemployment is a good thing, much of the decline in the unemployment rate is because 10 million people have left the labor force.  The number of discouraged workers remains above its late 2009 level, while the number of unemployed workers per job opening has fallen only slightly from its 2009 peak (see Figure 1).  With the weight of unemployed and underemployed workers on the job market, wages have remained stagnant in this recovery despite rising productivity, continuing a decades-long trend.

.

 

Despite slow economic growth, little job creation, and stagnant wages, some parts of the economy have boomed: the stock market and corporate profits.  After dramatic drops early in the recession, the Dow Jones Industrial Average has risen to new highs, growing in real terms significantly faster than in past recoveries.  While there may be some speculative element to the run-up in the Dow, it is well-supported by corporate profits, which have recovered fully from a sharp fall when the recession began to renew a 30 year climb (see Figure 2).

At least for now, American capitalists have solved the problem that bedeviled their Fordist forebears.  They have found ways to profit even when their workers cannot buy their stuff.  Since 2009, inflation-adjusted spending by the top 5% has risen 17 percent, compared with an anemic 1 percent among the rest.[2]  While Sears and J.C. Penney drift towards bankruptcy, Nordstrom and other luxury brands flourish.  Rather than depending on sales to working-class and middle-class consumers American corporations are doing very well selling to rich consumers, here and abroad.  Rather than promising workers high wages to ensure productivity, they maintain labor discipline through fear.

 

It seems that capitalists and managers have found answer to Reuther’s question. Business can’t sell stuff to robots, but they don’t need to sell stuff to workers either.

 


 

[1] “Why The Three Biggest Economic Lessons Were Forgotten,” accessed February 13, 2014, http://robertreich.org/post/76339971895.

[2] Nelson D. Schwartz, “The Middle Class Is Steadily Eroding. Just Ask the Business World.,” The New York Times, February 2, 2014, http://www.nytimes.com/2014/02/03/business/the-middle-class-is-steadily-eroding-just-ask-the-business-world.html; Barry Z. Cynamon and Steven M. Fazzari, Inequality, the Great Recession, and Slow Recovery, SSRN Scholarly Paper (Rochester, NY: Social Science Research Network, January 23, 2014), http://papers.ssrn.com/abstract=2205524.

Income Inequality IS Inequality of Opportunity

By Matson Boyd

Runners_in_a_relay_race,_Brisbane,_1939

The pushback against talking about income inequality has intensified. Jackie Calmes of the New York Times finds it coming from both Conservatives and “Centrists”, who instruct us to talk instead about equal opportunity. Many are fighting the pushback and making the case that we should be talking about inequality, for example Robert Reich notes that worsening inequality reduces consumer demand in the economy which ultimately reduces opportunity. And while this is true, Reich’s counterargument and many others have missed the real key here – income inequalities create inequalities of opportunity, by their very nature they are inseparable.

 

To state the obvious, money doesn’t just buy us leisure, but opportunity as well. Try for a minute to put yourself in the shoes of a low-income child. Your school spends about a third as much money on you as a kid would get in a wealthier school district. Your parents can’t buy you the healthiest food or the best medical care, and they suffer from more stress and decision fatigue, which does affect their parenting. I could go on and on, but let’s just stop by saying that if there is any kind of problem at home the parents are less likely to be able to do something about it. A patchwork of government programs can ease the burden somewhat, but without equalizing incomes the only way children from low-income families can actually share an equal opportunity is if children are raised kibbutz style (all together and separate from their parents).

 

Empirically the relationship between mobility and inequality looks like this:

Inequality

Miles Corak’s famed Great Gatsby Curve. Scandinavia has the highest mobility and the lowest inequality, and Latin America the lowest mobility and highest inequality. The United States is converging with the Latin American countries.

 

Some writers have been careful to point out the inseparability of inequality and opportunity. Dylan Matthews of Wonkblog concluded that “The distinction between equality of outcomes and opportunity has some theoretical appeal, but in practice, you get both or neither.” Sean Mcelwee of Salon uses the excellent metaphor of the relay race: “In truth, outcome determines the next generation’s opportunity. Hence, Obama is right to point out that inequality harms the American Dream. Life isn’t a sprint, it’s a relay race. And where one generation finishes, the next begins.”

 

Why then do so many insist that we only talk about equal opportunity? Perhaps some haven’t realized that opportunity is tied to equality. But the supposed right-wing concern for equal opportunity also shouldn’t be taken at face value. One of the few institutions that can partially compensate for inequality and maintain opportunity are schools, yet we live in a country where it is the norm for rich schools to spend 2-3 times as much as poor schools. Do we see Paul Ryan clamoring to equalize education spending? It’s clear that the Right is not serious about opportunity. Going forward the Left should insist on talking about income inequality and unequal opportunity as one problem, and never let conservatives pretend that they care about opportunity.

Quiz: Will the TPP Be Good for Me?

By Helen Scharber, CPE Staff Economist and Assistant Professor of Economics, Hampshire College

Leaders of TPP Countries

Leaders of TPP Countries

The Trans-Pacific Partnership (TPP) is a trade agreement that the U.S. and 11 other nations—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam—have been negotiating behind closed doors for four years. Now President Obama wants Congress to “fast track” the agreement, so that it can be passed without debate or amendments. Perhaps the secrecy and urgency sound suspicious, but you may still be wondering “Why should I care about the TPP? Will it be good for me?” To address these questions, we’ve developed a short quiz to help you determine whether you’ll benefit from the TPP:

1. Are you a major shareholder in a multinational corporation who has lost (or has the potential to lose) profits from frustrating environmental and labor regulations?

2. Are you a pharmaceutical patent-holder who would prefer that generic versions of your drugs not be made available to people in developing countries?

3. Are you an important player in the financial industry who spends too much energy trying to innovate around existing regulations?

If you answered yes to one or more of the above questions, congratulations!  You are likely to benefit from the TPP!

As with any new rules, though, some parties will not benefit. As economist Paul Krugman has pointed out, international trade itself is unlikely to get much of a boost if the TPP is signed. According to Krugman, “most conventional barriers to trade — tariffs, import quotas, and so on — are already quite low, so that it’s hard to get big effects out of lowering them still further.” Even pro-TPP researchers Peter A. Petri, Michael G. Plummer and Fan Zhai were only able to squeeze U.S. GDP gains of 0.1 percent over 10 years from their model of its economic impact.

If the TPP is only minimally about making trade freer or increasing GDP, what is the purpose? The agreement is likely to reduce other “trade distortions” (sometimes known as democratically-determined regulations) by empowering corporations to sue governments for taxpayer compensation if national laws are thought to impinge upon expected future profits.

Despite the President Obama’s faith that the TPP will create new jobs and encourage environmental protection, it is unlikely to do either. Experience with NAFTA suggests that we greet job promises with skepticism: Bill Clinton projected that NAFTA would create 200,000 U.S. jobs within the first year of the agreement, but by 2003, researchers at the Economic Policy Institute blamed the agreement for the loss of at least 850,000 U.S. jobs. Further, in a recent study on the effect of the TPP on U.S. wages, David Rosnick at the Center for Economic Policy Research found that “the median wage earner will probably lose as a result of any such agreement,” though “many top incomes will rise as a result of TPP expansion of the terms and enforcement of copyrights and patents.”

Due to the profits-over-people bias of the TPP, rights to a safe environment and health are likely to suffer as well. The leaked environment chapter  pays lip service to the right of sovereign nations to set environmental priorities and to the importance of upholding multilateral environmental agreements, but unlike the enforceable rules outlined for perceived loss of profit, environmental protections in the current version are not binding. Rather, in the case of environmental difficulties, parties are encouraged to “consider whether the matter could benefit from cooperative activities.”  To its credit, the Office of the United States Trade Representative (USTR) has been trying to uphold the May 2007 deal made by then-President Bush and Congress that all future trade agreements include binding environmental rules, but the U.S. appears to befighting that battle alone. If environmental laws end up being subjugated to anticipated profits, we can expect to see more lawsuits like the one under NAFTA in which a U.S.-incorporated company, Lone Pine Resources Inc., is suing the Canadian government for more than $250 million in lost profits due to Quebec’s moratorium on fracking.

The TPP would also extend patent protection for pharmaceutical companies, an industry whose profits are already well sheltered from the vicissitudes of the free-market. Economist Dean Baker estimates that, without patent and other similar protections, the U.S. would spend around $30 billion per year on prescription drugs, instead of the $300 billion we spend now. That’s a $270 billion transfer from consumers’ pockets to Big Pharma profits, and the TPP would extend their reach across both time (more years of protection) and space (to countries where generic versions of name-brand drugs improve health and save lives).

The editors of the San Francisco Gate wrote in support of fast-tracking the TPP, noting that “Prior trade pacts used the same path, the better to empower U.S. negotiators and minimize political interference back home.” They’re right: fast-tracking the agreement would undermine the ability of polities to “interfere” with corporate profits by passing or enforcing laws to protect jobs, wages, human rights and the environment. Fortunately, people are becoming wise to the false promises of trade agreements. According to a 2012 Angus Reid Public Opinion poll, only 15 percent of Americans believe the United States should “continue to be a member of NAFTA under the current terms,” while 53 percent of Americans believe the United States should “do whatever is necessary” to “renegotiate” or “leave” NAFTA. Some legislators, as well, are standing up for democracy. In November 2014, 151 members of Congress signed a letter to President Obama expressing opposition to fast-tracking the TPP.

If you think you or your loved ones may not benefit from the TPP, you’re not alone. But what to do?

First, check out the excellent resources at Public Citizen, then tell your friends, sign a petition, write a letter to the editor, and call or write your representative. In this case, political interference is exactly what is required.

No, Stopping Keystone is Important

By Matson Boyd

 

Tar Sands Before & After. Photo from Northern Rockies Rising Tide.

Tar Sands Before & After. Photo from Northern Rockies Rising Tide.

 

The long awaited State Department review of the Keystone pipeline plan has finally come out. It argues, essentially, that approval or denial of Keystone will have little impact on the climate, not because Keystone isn’t destructive (it is), but because the oil companies will just find a different way to export the tar sands oil out of Canada if Keystone is blocked. This echoes the long held position of liberal bloggers like Jonathan Chait, Barkley Rosser, and Matthew Yglesias, who consider environmental activists misguided in their opposition to Keystone. Unfortunately, the logic of the bloggers and the State Department eerily echoes the global coordination problem of climate change; “why stop Keystone if they’ll just build another way out?” is the local version of “why should the United States try to stop climate change if its a global problem?” In the face of this coordination problem one can either become hopeless or one can make a start, and work together with environmental activists around the world to finish the job.

There are two main alternatives for oil companies to get more oil out, both of which face mounting opposition. The first way out is more oil trains to ports and refineries throughout North America, which is stirring up protests from Maineto Washington State, and is not cost effective enough to support tar sands expansion. The second route is the proposed Enbridge Northern Gateway Pipelines, planned to run 731 miles from Alberta across the British Columbia Rockies to the Pacific Coast. This plan has earned the near total opposition of B.C. First Nations, who’ve vowed to stop the pipeline and will likely succeed. And expansion of the tar sands itself is now facing stiffening opposition from Alberta First Nations, now in Canada’s headlines because of Neil Young’s support for their cause. Among the Canadian public, the tar sands project does not have unambiguous support, and the project’s expansion is far from assured, resting entirely on the support of one political party, The Conservative Party, who now form a majority government despite only winning 39.6% of the vote.

The State Department is now downplaying an alternative scenario it explored in which no other pipeline would be built and oil prices were slightly lower. It found in that scenario that the expansion of the tar sands attributable to Keystone would be the equivalent of adding 5.7 million passenger vehicles to the road. Why is the State Department downplaying this? Have they not fully taken into account the possibility that activists might win? To prevent the acceleration of climate change, it’s necessary for people to take action, and to take a leap of faith that others will join them.  In other words, we need solidarity which the State Department’s report assumes away.

Keystone is now in the President’s hands, and if Obama signs onto Keystone then it puts him in an odd position: if either Canada or the U.S. ever adopts a sensible carbon policy then Keystone becomes instantly obsolete, because the tar sands oil is far more polluting than regular crude oil. And the ethical problem remains: how can we support doing the wrong thing under the justification that we don’t expect others to do right?

Workers’ “revolt” in Cuba

by Ricardo Fuentes-Ramires

Vikas Street in Holguín

 

The New York Times recently published an article on Cuban vendors protesting in the city of Holguín, Cuba. The article states that Cuban artisans and vendors marched in protest to local government offices as a response to a government crackdown on self-employed Cubans selling imported products. Some articles from Miami-based news services reported there were over a thousand people protesting, with emphasis in that this was not merely a manifestation of anti-Castro dissidents, but a worker’s revolt. What really happened was much less dramatic.

 

Upon reading about the protests, Cuban blogger Yohandry Fontana decided to call up a friend in Holguín to verify the facts. During the months of October and November 2013, the Cuban government established new rules for self-employed workers as part of the ongoing effort to expand self-employment in Cuba. Self-employed Cubans have gone from a little over 150,000 in 2010 to close to 450,000 in 2013. The latest measures clarified that self-employed workers licensed as tailors or dressmakers were not authorized to import and resell clothing. Self-employed workers requested permission to sell what they still had in inventory, which was granted until December 31st 2013. According to Fontana, on January 21st 2014, eight or nine people were fined for continuing to sell imported clothing. There were also some confiscations, while other self-employed Cubans were inspected. Unsatisfied with the measure, those who were fined managed to organize 49 self-employed workers to go to the local government offices. Once there, they were all attended, their complaints heard, and all the actions taken by the government explained.

 

In seconds, this spread across social networks, but the number of people was elevated to 700. Apparently, this wasn’t enough, so the Miami-based counterrevolutionary organization Democratic and Independent Cuba (CID in Spanish) elevated the number to one thousand protesters.

 

The “CID” interpreted this as a popular uprising and escalated the news across Twitter and some Miami radio stations. However, Fontana notes that by the afternoon, the city of Holguín was talking more about baseball than of the incident with the self-employed workers.

Raise the Minimum Wage in 2014!

Minimum Wage

by Anders Fremstad

Today’s federal minimum wage is a poverty wage.  At $7.25 an hour, full-time workers earn just $14,500 a year, leaving single parents below the poverty line.  This might explain why Americans overwhelmingly support raising the minimum wage.  Gallop polling shows that in November 76% of Americans wanted to increase the federal minimum wage to $9, up from 71% in March.  And Hart Research polling finds that 80% of Americans support raising the wage to $10.10 per hour and indexing it to the cost of living.

The main argument against increasing the minimum wage – or, for that matter, having a minimum wage – comes from neoclassical economic theory.  Setting the minimum wage above the market equilibrium wage reduces the number of workers that firms can (profitably) employ.  The implication of the neoclassical theory is that, while a higher minimum wage will help some low-wage workers, it will cause others to lose their jobs.

History does not provide much support for the theory that higher minimum wages lead to reduced employment.  In 1960 the minimum wage was $1 an hour, which is equivalent to $7.87 in today’s dollars.  Although firms had to pay workers a higher real wage then, unemployment was lower in 1960 than it is today.  If the US economy could handle a $1 minimum wage in 1960, what could it handle today?  If the minimum wage had increased along with the median wage for full-time workers, it would be $9.20.  If the minimum wage had increased with the incomes of the top 1%,it would be $22.62.

Most economists are unconvinced this sort of historical evidence.  And it is possible that the market for low-wage workers has fundamentally changed over the last fifty years, so that raising the minimum wage above $7.25 might reduce employment in 2014 even if it did not in 1960.  Most economic research on the subject analyzes what happened to employment in states that did and did not mandate higher minimum wages than the federal minimum wage over the last two decades.  Economists on both sides of the debate focus on two groups of workers that are particularly likely to lose their jobs: teens and restaurant workers.  But even among these groups, raising the minimum wage barely impacts employment.  Neumark, Salas, and Wascher, who generally oppose raising minimum wage, conclude in a January 2013NBER paper that a 10% increase in a state’s minimum wage reduces teen employment by almost 3% and restaurant employment by 0.5%.  Allegretto, Dube, Reich, and Zipperer criticize Neumark et al’s methods and results in a September 2013IZA paper.  Using four datasets and three methods of estimating the effect of minimum wage hikes, Allegretto et al. find no evidence that a 10% increase in the minimum wage reduces the employment of teens or restaurant workers by more than 1%, and they find some evidence that it has no impact on employment.

Even Neumark et al.’s estimates do not provide much of an argument against raising the minimum wage.  A higher minimum wage may reduce teen employment.  However, it is not clear how bad this is for teens, who need a good education to ensure decent employment in the long run.  And since teens now make up less than a quarter of minimum wage workers, it is difficult to justify keeping the wages of adults low to prevent minor job losses among 16-19 year olds.  When it comes to restaurant workers, even Neumark et al. conclude that increasing the minimum wage by 10% reduces employment by just 0.5%.  The benefit of providing a substantial raise to the 99.5% of restaurant workers clearly outweighs the cost of having 0.5% of restaurant workers search for employment elsewhere.  Of course, if Allegretto et al.’s smaller estimates are correct, the case for raising the minimum wage is even stronger.

Although economists havehistorically opposed increases in the minimum wage, they have recently changed their minds in light of this evidence that the minimum wage has little or no impact on employment.  A February 2013poll of influential economists finds that 47% agree that it would be desirable to increase the federal minimum wage to $9 an hour and index it to inflation, while only 11% of economists disagree, and 32% remain uncertain.  Of those who have an opinion, 81% of influential economists approve of raising the minimum wage to $9 an hour, which is similar to the level of support among the general public.

Of course, the fact that raising the minimum wage is good for workers and has popular support does not guarantee it will occur.  However, activists are pushing politicians to give minimum-wage workers a raise, and they have hadsome real victories at the state and local level.  New Jersey voters just raised the state’s minimum wage to $8.25.  California will raise its minimum wage to $9 on July 1st and to $10 in 2016.  Following a popular campaign to raise workers wages in Washington DC, the city council partnered with neighboring counties to increase local minimum wages each year starting with $8.40 in October this year and getting to $11.50 in October 2017.  Voters in SeaTac, Washington elected to increase the minimum wage to $15 on January 1st.  Since then, a judge ruled with Alaska Airlines and the Washington Restaurant Association that the law does not affect workers at the Seattle-Tacoma International Airport, but supporters of the law are appealing that decision.  The fight is spreading to Seattle, where Mayor Ed Murray has promised a $15 minimum wage by the end of his term, but the newly-elected City Councilmember (andpopular economist) Kshama Sawant has pledged to work for a $15 wagethis year.  Meanwhile, pressure is building on Congress to act.  Representative George Miller ispushing a bill to increase the federal minimum wage to $10.10 in 2015 and index it to the cost of living, and the bill is becoming central to Democratic strategy in 2014.

Increasing the minimum wage will not magically rollback decades of rising inequality, but it may be the best way to improve the lives of workers this year.  It is good economics and it has popular support.  We need to keep the pressure on politicians to give minimum wage workers a raise in 2014.

The Last Bad Idea: The Patient Protection and Affordable Care Act

medical-symbolby Gerald Friedman,

Professor of Economics, University of Massachusetts Amherst

The Patient Protection and Affordable Care Act (ACA) was adopted in 2010, but many provisions are only being phased in over several years. Important provisions that have already taken effect include the requirement that family policies allow parents to keep their children enrolled until they are 26. The high unemployment rate for young adults and the lack of health coverage even for many with jobs has made this provision a great boon to many. But there is much more to come with major elements to be implemented in January 2014, including a huge expansion in Medicaid coverage to the working poor, and the requirement that individuals without other coverage buy health insurance through new state exchanges, often with substantial federal subsidies. Rather than making a fundamental shift to a system where health care is publicly guaranteed as a basic human right, the ACA reforms and expands the existing health insurance system, leaving private for-profit insurance companies as gatekeepers to medical care. Without changing the foundation of the health care infrastructure, the law offers private insurers an expansion in business as a carrot to get them to accept reforms that limit their use of adverse selection, the practice of screening to identify and discourage the expensive sick (“lemon dropping”) and to attract the low-cost well (“cherry picking”). The law also provides a dramatic expansion of public insurance by mandating that everyone is eligible for Medicaid whose income is below 138% of the Federal Poverty Line (FPL); but the Supreme Court has limited this program by allowing states to opt out of the expansion. Several Republican-dominated state governments are choosing this option despite the Federal commitment to pay over 90% of the costs of expansion.  The Court preserved the requirement that everyone have insurance and the law’s subsidies for buying private insurance, subsidies that will go to households with incomes as much as 400% of the FPL beginning in January 2014 when the individual mandate goes into effect. Despite the Court decision and some state-level refusals to expand Medicaid, it is projected that the ACA will reduce the population without insurance by almost half, from 55 million in 2013 to 29 million by 2017. Over 80% of the newly insured are expected to receive subsidies; with an average subsidy of over $5,000 paid largely through new taxes on the highest earners, the subsidized insurance will be one of the largest redistributive measures ever enacted.

Subsidized coverage expansion and restrictions on insurance company abuses are significant gains. But these gains come at a steep price because with the ACA the Obama Administration has entrenched the insurance and drug companies as arbiters of America’s health care system.  This is not only repugnant because of these companies’ abusive policies, but it endangers everything that the ACA seeks because it precludes effective action to contain rapidly rising health care costs. Private plans divert health care spending into channels that do nothing to actually deliver health care, such as advertising and profit. The proliferation of plans has also raised billing costs for providers, hospitals, clinics, and private medical practices, costs that now come to nearly a third of the cost of health care. Without effective controls on profits and administrative costs, health care costs will continue to soar, rising faster than household, company and government budgets.  The pressure to control health care costs will continue and, having removed profits and administrative waste from consideration, the ACA risks becoming a vehicle to control health care costs by squeezing providers and restricting access.

The ACA commits the United States to providing universal access to health care.  This is a great achievement, one to be treasured and nurtured.  Now the real fight begins: the fight to turn this commitment into a reality that the ACA itself cannot produce.  In a few years, it will be clear that the ACA will have failed to provide universal coverage and failed to control costs. As president, Barack Obama accepted the political wisdom that it would be impossible to enact a single-payer program that would abolish the private health insurance market, but prior to his presidency he had been a long-time supporter of single payer. And he was right: only a single payer program can provide universal coverage, and only a single payer program can control costs.  The ACA may be the last bad idea that Americans try; after it fails, we will finally do the right thing: single payer health insurance.

 

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