No, the "401(k) revolution" was not a "failure"; it was a spectacular success

Image: Wall Street watches out for senior citizens. They can make an awful lot of money off them. (source)


I recommend reading this piece by Lynn Stuart Parramore, as it is among the most clear and concise descriptions of how the "401(k) revolution" (her words) is in the process of upending the retirement security of the vast majority of Americans, but also how it is a major driver of inequality. As she explains, the rise of the 401(k) added a tremendous amount of fuel to the inequality fire (for more, here's a useful Wonkblog summary of a much longer EPI report).

But Parramore makes a mistake very common to many liberals lamenting the rise of the 401(k). I'm not implying that she is in any way unique--this mistake is extremely common across the political spectrum, including liberals. That mistake occurs from beginning to end in the tale of the 401(k). Act one: 401(k)'s are born:

Thirty years ago, as laissez-faire fanaticism took hold of America, misguided policy-makers decided that do-it-yourself retirement plans, otherwise known as 401(k)s, would magically secure our financial future in the face of gyrating markets, economic crises, unpredictable life events, stagnant wages and rampant job insecurity.

Note how the rise of the 401(k) is described as a mistake. Some "misguided" people made a mistake, and we're about to feel the very serious effects of that poor decision. The "misguided policy-makers" honestly thought this was a good idea--but good intentions do not make good policy, and their plan is about to backfire:

Instead of having predictable streams of income from traditional pensions, ordinary people with little financial expertise would suddenly transform themselves into financial gurus, putting money aside and managing complicated investments in tax-deferred accounts.

Note how Parramore explains that "ordinary people" were expected to benefit from 401(k)'s. It's not that 401(k)'s were expected to help only the wealthy or only the investor class. They were designed to--and expected to--help everyone, including "ordinary people."

(By "traditional pensions," Parramore means defined benefit pensions. For those unacquainted, a defined benefit pension is an agreement that an employer will pay an employee a specific dollar amount each month from the date the employee retires to the date the employee dies. 401(k)'s are defined contribution, meaning the employer agrees to contribute a specific percentage (the "employer match") to a bizarre financial instrument, which is invested in the stock market and will pay out money to the employee once she retires. Of course, some employers don't actually offer an employer contribution--in other words, the "employer match" or "defined contribution" is zero.)

She succinctly describes how the entire scheme has already violently backfired:

Reality check: In 2007, the financial crisis destroyed America’s retirement fantasy. Jobs evaporated or were downsized. The stock market took a nosedive. Millions of Americans who had worked hard, straining to sock away a portion of their salary for 401(k)s, watched helplessly as a black cloud formed over their golden years. In October 2008, the Congressional Budget Office revealed that Americans had lost $2 trillion in just 15 months — money that will likely never be recovered.

And, she gets close to the crux of the issue in concisely describing how 401(k)'s have enabled a further rise in inequality--

The report reveals that median retirement savings today stand at a paltry $44,000. But if you start looking at affluent America, the picture changes dramatically. A household at the 90 percentile of the retirement savings distribution had nearly 100 times more socked away for retirement than the median household. And the top 1 percent? Households at that lofty level had stashed more than $1.3 million in retirement account savings.

In a nutshell, the 401(k) revolution created a few big winners and turned most of us into losers.

--but ultimately misses the point. Liberals have the what and the how of 401(k)'s nailed down, but usually miss the why.

Augmenting this understanding with the why of 401(k)'s is of utmost importance, because many liberals assume that pointing out the disastrous results of the 401(k) revolution is a key first step in changing policy. In their minds, if we could only prove that the policies that enabled the rise of 401(k)'s resulted in bad policy outcomes, our political system would be convinced that it's time to reverse course.

The problem is, the movement towards 401(k)'s has not been a mistake, and it certainly has not been a failure. It is going exactly according to plan. 401(k)'s indeed are a vastly inferior system for the vast majority of Americans, but 401(k)'s were not created to help ordinary people save for retirement. They were created and expanded for very different reasons. To the people who ushered in the 401(k) revolution, the retirement "nightmare" beginning to swallow recent American retirees has not been a nightmare at all. It has been an especially enriching and welcome development.

Remember as you're reading: defined contribution pensions are a vastly inferior model to defined benefit pensions. Defined benefit pensions can provide the same retirement security as a defined contribution pension, for 45% less cost. Additionally, research argues that putting money in a 401(k) is generally harmful for low income workers. Whatever the reason to switch from defined benefit to 401(k), it should be a really good reason in order to make up for the enormously higher cost and other weaknesses. You be the judge:

Administration and actuarial values: Why huge government programs are more efficient than the private market

Image: This is a post about risk (source)


To keep this blog approachable, I'll have to define a few terms. Skip the following indented section if you already know:

• A defined benefit pension is one where an employer agrees to pay a specific dollar amount each month to an employee from the time she retires to the time she dies.
• A 401(k) is a type of defined contribution pension. Unlike the defined benefit pension, the employee has no guarantee of income once she retires. That depends on how much money she and her employer put into it, and the performance of the stock market before she retires. It's called a defined contribution pension because--rather than getting a guaranteed defined benefit from the plan--employees get a guaranteed defined contribution to the plan. This defined contribution is the "employer match" to an employee's 401(k). Of course, many employers don't actually offer an employer match; their "defined contribution" is zero and the employee is responsible for funding their entire account.

Let's skip all the philosophical arguments of whose responsibility retirement security should be and ask the question. Which model is more efficient?

The National Institute on Retirement Security issued a report examining that very question. They found that one defined benefit pension plan can cover 1000 employees at 45% less cost than 1000 individual defined contribution retirement plans for those same employees.

It's worth noting that defined benefit pensions are basically a thing of the past. Only current retirees and people very close to retirement have them in the private sector. In the public sector, Republicans' favorite domestic boogey man is public sector pensions, and they're targeted for cuts even in blue states. (No, public worker pensions are not unaffordable. No, public worker pensions didn't bankrupt Detroit). In short, defined benefit pensions are a thing of the past for almost everybody.

As one might assume, there would have to be some extremely compelling reasons to switch to a retirement model that's almost twice as expensive. I wrote here on the reasons for this transition; none of the winners are employees or retirees.

So, why are defined benefit pensions so much more efficient? NIRS provides three reasons:

Does Social Security provide worse returns than the stock market?

Image: Thanks to George W. Bush, a spate of excellent commentary on Social Security privitization was written in 2005.

Updated below, 3/3/14


This question is tangentially related to a post I'm currently working on, so I wanted to address it. However, since much ink has been spilled on this topic, I don't actually have anything to add. Instead, I'll just blockquote a few key arguments.

It's true that the stock market outperformed returns on monies in the Social Security Trust Fund for the years leading up to the Great Recession starting in 2008. But assumptions that the stock market will continue to outperform bonds are fantasy: 

Now it’s true that in the past stocks have yielded a very good return, around 7 percent in real terms — more than enough to compensate for additional risk. But a weird thing has happened in the debate: proposals by erstwhile serious economists such as Martin Feldstein appear to be based on the assertion that it’s a sort of economic law that stocks will always yield a much higher rate of return than bonds. They seem to treat that 7 percent rate of return as if it were a natural constant, like the speed of light.

What ordinary economics tells us is just the opposite: if there is a natural law here, it’s that easy returns get competed away, and there’s no such thing as a free lunch. If, as Jeremy Siegel tells us, stocks have yielded a high rate of return with relatively little risk for long-run investors, that doesn’t tell us that they will always do so in the future. It tells us that in the past stocks were underpriced. And we can expect the market to correct that...

And it's not just Paul Krugman who thinks that 7% returns on stocks will not be true indefinitely. Not even the market thinks the stock market will continue to outperform bonds:

Corporate welfare and the false promises of big box development

Salon excerpted a book by Charles Montgomery, well worth reading in full. Below, I've quoted some of the most interesting parts, which basically make untenable the argument that big box stores like Walmart create more tax revenue or jobs than more traditional forms of development:

To explain, Minicozzi offered me his classic urban accounting smackdown, using two competing properties: On the one side is a downtown building his firm rescued—a six-story steel-framed 1923 classic once owned by JCPenney and converted into shops, offices, and condos. On the other side is a Walmart on the edge of town. The old Penney’s building sits on less than a quarter of an acre, while the Walmart and its parking lots occupy thirty-four acres. Adding up the property and sales tax paid on each piece of land, Minicozzi found that the Walmart contributed only $50,800 to the city in retail and property taxes for each acre it used, but the JCPenney building contributed a whopping $330,000 per acre in property tax alone. In other words, the city got more than seven times the return for every acre on downtown investments than it did when it broke new ground out on the city limits. 

Abandon the minimum wage! Bring Finnish-style erga omnes unionization laws to America!

I'm rewriting this page so that it fits in better with this project. I'll post a link to the rewrite here once it's done.

OECD report confirms that inequality does not incentivize upward mobility

Image: OECD member nations (blue). (source)


Defenses of inequality always invoke the same claim: high inequality makes for a strong economy. With (in theory) no ceiling and a very low floor, the rewards for success are extremely high, and the punishment for failure is extreme. This makes Americans hungry for success, and hard working citizens makes for a strong economy. We work harder than the Japanese, put in more hours than the Italians, study harder than the French, and sacrifice more than the Finns because our incentives encourage workers to do so. Nothing motivates like huge rewards for success--and a free fall into abject poverty if you fail. Incentives rule. People respond to incentives, and our incentives align to maximize economic growth. Another way of saying this is that we should value equality of opportunity and inequality of outcomes.
 
A recent OECD study shakes this logic to its very foundations. Researchers tested a sample of workers in each participating country in literacy, math, and problem solving with information technology. The United States performed abysmally:

Obama on undocumented immigration: can't or won't?

Image: Latino protesters against President Obama's immigration policy..."LATINOS ? OBAMA" (source)

Recently, President Obama caused a stir by insisting that he legally doesn't have the power to stop deportations of undocumented immigrants. I'm not a lawyer, so I can't weigh in on whether or not that's actually true. Rather, it's important to note that the weight of the evidence argues persuasively that Obama has no interest in helping undocumented immigrants, regardless of whether or not he actually can.

This is building off a previous post I wrote about how President Obama doesn't care about the plight of illegal immigrants. It's textbook liberal Democrat myth. To summarize that post:

• Advocating for immigration reform does not make you a liberal. President Reagan signed into law that eventually gave amnesty to 3 million undocumented immigrants. John McCain proposed an immigration reform bill that would have provided amnesty to undocumented immigrants in 2008, shortly before winning the Republican nomination to run for President. In 2007, President George W. Bush tried (and failed) to push another bill that would have granted amnesty to undocumented immigrants. Senator Obama helped to kill that bill.
• When, as President, Obama released an immigration reform bill in early 2013, he did so only grudgingly. United States law requires green card holders to wait 5 years before becoming a citizen; the amnesty bill Reagan signed into law required undocumented immigrants to wait an additional 18 months. Obama's plan required undocumented immigrants to wait an additional eight years! Obviously, Obama has to expect his proposal to be the left-most point of the debate; any compromise with Republicans will thus be further to the right than his original proposal. Obama is a smart man; he knows this to be true. That is precisely what he wants to happen. Either Obama and his entire team of advisors are so stupid that they can't game out politics further than an armchair blogger--or he wants a very right-wing immigration reform plan. Remember, he's already in his second term and doesn't need to worry about reelection.
• Others have pointed out that Obama claimed throughout his first term that he could not legally order ICE to defer deportation action against undocumented immigrants who were brought into the country illegally by their parents as children (the so-called "DREAMers"). Then, while running for reelection in 2012, he suddenly ordered ICE to do exactly that, with no legal challenges or consequences whatsoever. As I pointed out, there is no doubt that he did so to help win reelection.
• Even Republicans have a modicum of understanding for the situation of people whose parents brought them across the border as young children--and who thus know no other country as "home." It's very difficult to attack a decision to protect this small fraction of undocumented immigrants. His decision to create a loophole for just DREAMers took very little courage.

Read the full post for more details.

All right then, let's take a look at what immigration enforcement has looked like under the Obama administration. Reminder: Immigration and Customs Enforcement (ICE) is a branch of the Department of Homeland Security; obviously, Obama appoints the head of DHS and is thus directly responsible for the general direction of ICE efforts, even if he isn't responsible for specific initiatives. Under Obama's leadership, ICE will have deported 2 million people by 2014--in just six years, Obama will have deported more people than were deported from the years 1892 and 1996--combined. In the eight years he was president, George W. Bush deported 2 million undocumented immigrants; Obama will have managed to deport that number of undocumented immigrants in just five years(!). And, the US spends more on immigration enforcement than all other federal law enforcement categories combined, and illegal border re-entry is the most prosecuted federal crime. This isn't a symptom of increased undocumented immigration; undocumented immigration has been on a steady decline since 2008, shortly before Obama was inaugurated. It doesn't have to be this way.

It's worth pausing to note that Congress controls budgeting, and Obama doesn't necessarily have a say in all of this. Nevertheless, if this isn't the outcome Obama wanted, why did he appoint an immigration enforcement hawk to head up DHS? Does anyone really think Obama was surprised when he learned ICE was setting deportation quotas? Indeed, Obama controls Department of Justice priorities; if he can order federal prosecutors to disobey (an extremely unjust) federal law in order to keep low-level drug offenders out of prison, he can at least order federal prosecutors to shift resources away from prosecuting undocumented immigration. Clearly, Obama has no qualms about bending the rules to prevent a perceived injustice; it's just that he doesn't see immigration law as being as unjust as mandatory minimums (except, as outlined in my previous post, when it's electorally necessary). In sum, Obama isn't an immigration dictator, but he isn't powerless, either.

U6 Watch bonus: Can there be any doubt that the point of student loans is to maximize inequality?

While preparing this month's U6 Watch, I kept coming across evidence that student loans are strangling American innovation. First, the in the Wall Street Journal:

Having the student-loan debt “is preventing me from being able to take a lot of chances or risks that are usually necessary when starting a business,” Ms. Carney says…

Some academic experts say leftover loans are the biggest impediment to upstart entrepreneurship by those who recently received college or graduate degrees. “I mentor students all the time,” says Vivek Wadhwa, a fellow at Stanford University Law School. “The single largest inhibitor to entrepreneurship is the student loans.”

Recent graduates and college dropouts account for a disproportionate share of the founders of technology startups that have transformed the economy over the past decade, says Shikhar Ghosh, a senior lecturer at Harvard Business School. Many freshly-minted M.B.A.s “are willing to sleep on a couch for a year or two, but they can’t do it with the burden of student loans,” he adds.

U6 Watch: August 2013

U6 Watch is a monthly feature monitoring the poverty-sustaining compromise of Democrats and Republicans to use the U3 measure of unemployment to obscure the reality of the labor market. Read the first U6 Watch for more background. U6 Watch also highlights other "recovery" and labor market news. All U6 Watches can be found using the U6 Watch tag.

I started U6 Watch back in July in response to the June BLS jobs report. In that jobs report, the most widely-reported measure of unemployment--the U3--fell--while the more accurate U6 unemployment rate increased. Since the U6 is a far more accurate measure of workforce underutilization than the U3, the positive press surrounding the "drop" in unemployment was smoke and mirrors; the situation had actually gotten worse, not better. Since the U3 was misleading while the U6 was not, I named the feature U6 Watch. However, had I started this month, I might have called it something different--for, this month, U3 and U6 are both misleading.

U3 unemployment fell from 7.4% in July to 7.3% in August; U6 unemployment rate fell 14.0% to 13.7%. This certainly sounds encouraging.

Unfortunately, the number of employed persons decreased from 144,285,000 to 144,270,000 (because it's a survey, BLS rounds to the nearest 1,000). The number of people working as a percentage of population fell from 58.7% to 58.6%. The labor force participation rate fell from 63.4% to 63.2%.

Once again, the numerator of the U3 and the U6 only count someone as unemployed if they are actively looking for work. If people stop looking for work (because they give up their job search or retire), the unemployment rate will fall, even if the employment situation hasn't changed. That is exactly what happened this month. Both U3 and U6 are used to report that the situation is getting better--that fewer people are unemployed. In fact, both measures fell only because people left the labor force. People didn't find jobs--fewer people are working this month than they were last month.

It's true that jobs reports are almost always inaccurate, and this one will almost certainly be revised--perhaps reversing these conclusions. Nevertheless, any attempt to make these numbers tell a positive story is an outright lie--and that's the key point. A essential feature of poverty sustainment (policies designed to keep people poor) is obscuring the reality of the situation. This is clearly what both U3 and U6 unemployment rates have done this month--they paint a rosy picture when things are--at best--not getting worse.

Now, BLS statistics suggest that the fall in the labor force participation rate was mainly due to people retiring. While that's better than the alternative--people giving up on their job search--this is no consolation whatsoever to the unemployed, since the data argue that we are losing jobs, not creating them.

On to other labor market news.

I forgot to put this in the July U6 watch: per the Bureau of Labor Statistics, job postings increased in June, but hiring fell. Sure, there's a lot of job postings up, but that doesn't mean employers are actually hiring. Remember that before you poke an unemployed person.

U6 Watch is about to go from bad to worse:

The 1% Consensus

Image: Grand Ayatollah Ali Khamenei, the current Supreme Leader of Iran (source)

So--there's this proposal in Iran that's not very controversial. 71% of the general public support it, with wide agreement among different age and racial groups. There are two political parties. Supporters of one political party favor the policy 91% -9%, and supporters of the other political party are split down the middle (50% in favor, 48% opposed). Since the Iranian government refuses to implement this policy, would you call Iran a democracy?

This doesn't describe Iran, of course; it describes the United States and the incredible, widespread public support for increasing the minimum wage. If a rational person would argue that Iran is not a democracy if it disregarded popular opinion so blithely, why should that not be true of America? How would you not conclude that the American government does not serve its people, but rather its corporate overlords? Remember, the Democrats--whose supporters favor a minimum wage hike 91% to 9%--controlled the Presidency and both houses of Congress from 2009 to 2011 and had a fillibuster-proof majority for most of 2009. Granted, there were other important legislative priorities, like health care reform (though that, too, was a shameless corporate sellout), but when the Democrats were one vote shy of 60 in the Senate, how could they not find one single moderate Senator in a party where 50% of voters support increasing the minimum wage? It's almost like they weren't even trying. And, it's interesting that a minimum wage hike would require breaking a Senate filibuster but the Wall Street bailout didn't.

(for the record, here is my post arguing against the minimum wage)

I started writing this blog when I realized I was having the wrong debates. I thought there was some uncertainty over the best way to fight poverty without sacrificing economic growth or job creation; there isn't. The reason we don't fight poverty is not because we don't know how, but because our political system doesn't want to. The bifurcation of the middle class into the sort-of-wealthy and working poor doesn't have to happen either; there's no controversy over how to prevent that from happening, either.

However, there is significant controversy over our policy goals. This controversy is usually unspoken; not even Republican Ayn Rand disciples would have the nerve to say that they want people to remain poor, even though that is exactly what they want. Our government usually gets the policy outcome it desires, even if that policy goal is unspoken. Poverty remains high because our government does not desire poverty reduction.

Our political system only values the interests of the rich, often at the expense of everyone else. Political science data bear this out:

Gilens has been collecting the results of nearly 2,000 survey questions reaching back to the 1980s, looking for evidence that when opinions change, so too does policy. And he found it--but only for the rich. "Most policy changes with majority support didn’t become law," Hacker and Pierson write. The exception was "when they were supported by those at the top. When the opinions of the poor diverged from those of the well-off, the opinions of the poor ceased to have any apparent influence: If 90 percent of poor Americans supported a policy change, it was no more likely to happen than if 10 percent did. By contrast, when more of the well-off supported a change, it was substantially more likely to happen.

Unfortunately, Gilens' data only allowed him to divide Americans by decile; he was not able to resolve the top 10% to see the opinions of just the top 1%.  More data, about Congressional representatives:

Message from the left

I'm rewriting this page so that it fits in better with this project. I'll post a link to the rewrite here once it's done.

Gini coefficients / inequality in social democracies in the 2000's

I wrote here about a paper examining the success of social democracies compared to other types of welfare states from the 1960's to 1990's. Unfortunately, the paper was published in 2001, and I haven't found a similar effort that is more up to date. To fill in some blanks, here are three graphs from a different post that compare income inequality of social democracies, Christian democracies, and liberal countries in the 2000's. Let's all give Wikipedia a hand for sensibly organizing the OECD's amazingly disorganized data. As you can see, the pattern still holds: social democracies (left group) limit inequality better than Christian democracies (center group), which do better than liberal countries (right group):

Lesson for Teach for America in statistical versus practical significance

Image: Teach for America founder Wendy Kopp (source)

A recent study has many touting the benefits of TFA. The most overheated has been Dylan Matthews (Teach for America is a deeply divisive program. It also works.), but Matthew Yglesias is similarly condescending (Since empirical evidence doesn't change anyone's mind about this issue...), though Yglesias is at least more reasoned in his assessment (see below). No, the study didn't show that TFA works. It showed that it works for one subject in economically disadvantaged schools versus inexperienced teachers, provided you assume that TFA volunteers weren't teaching to the test. And, just because something's statistically significant doesn't mean it has any real world value. I'll let Dana Goldstein take it from here:

TFA math teachers outperformed non-TFA math teachers in their schools by .06 standard deviations in middle school and .13 standard deviations in high school. The talking point will be that this is the equivalent of an additional 2.6 months of learning per schoolyear. But it's important to realize this represents a relatively modest improvement in student achievement. For the average child in this study, who scored in just the 27th percentile in math compared to her peers across the country, having a TFA teacher will help her move up to the 30th percentile--still a long way off from grade-level math proficiency.

Right. TFA "works," in that it can improve student performance in one subject from well below grade level to...still well below grade level. Also worth noting:

Scott Walker taught me everything I know about politics: Equality

 
Video: An injury to one is an injury to all--Wisconsin firefighters arrive in dress uniform to protest Scott Walker's union-busting Budget Repair Bill.

Equality is the fundamental tenet of social democracy. For America's social democratic programs--Social Security, Medicare, and Unemployment Insurance--everyone is treated the same. Every citizen has the same right to these programs as everyone else.  There are no exceptions. No one gets left out; no one gets special treatment.  Everyone has the same rights. Rich or poor, male or female, racial majority or minority--none of this matters. All citizens are entitled to the same benefits as everyone else. Equality above all else. Equality is valued for equality's sake.

But even if you don't believe in equality for the sake of equality, there are other reasons to fight for equality. There are other reasons to fight for the rights of others--to fight battles that have nothing to do with you.  Let Scott Walker be your teacher.  You must defend everyone's rights, because your silence ensures that someone like Walker will come for you next.

U6 Watch: July 2013

U6 Watch is a monthly feature monitoring the success of the poverty-sustaining compromise of both political parties to use the U3 measure of unemployment.  Read the first U6 Watch for more background.  Other "recovery" news and labor market news is reported as well.

New data is in revising the basis of my frequent exasperation that corporate profits are at record highs, while wages and salaries are at record lows.  I wasn't wrong, it's just that things are more extreme than we thought:

Before the figures were revised, it appeared that wages and salary income in 2012 amounted to 44 percent of G.D.P., the lowest at any time since 1929, which is as far back as the data goes.

But the revisions cut that to 42.6 percent, which matched the revised 2010 figure as the lowest ever.

The flip side of that is that corporate profits after taxes amounted to a record 9.7 percent of G.D.P. Each of the last three years has been higher than the earlier record high, of 9.1 percent, which was set in 1929.

Last month's U6 Watch discussed the declining labor force participation rate.  An Urban Institute report (h/t) breaks down the components of the stagnating labor force participation rate, finding:

Obamacare's means testing is a phenomenal waste

Image: This is what Obamacare's means testing looks like, in flow chart form (source)

Much ink has been spilled about what an incredible corporate sell-out Obamacare is (my favorite piece).  But the law's centerpiece--the insurance exchanges--is based on the principle of means testing.  Means testing is always a waste of scarce resources.  As Obamacare's exchanges come online, it's worth pointing out (again) just how phenomenally wasteful Obamacare's means testing is.

Obamacare and why we have a two-tiered welfare state

Image: The illustration from Suzanne Mettler's article on the "submerged state," a key aspect of America's two-tiered welfare system.

A little background: In 2009, as Congress debated the corporate sell-out known as Obamacare, Iowa Republican Senator Chuck Grassley proposed an amendment that would force every member of Congress to use the Obamacare exchanges.  Grassley clearly thought that the Democrats secretly expected the exchanges to crash and burn, and would thus be unwilling to rely on them.  Fearing for their health, the Democrats would vote the amendment down, thus exposing their own hypocrisy.

Grassley miscalculated, however.  The Democrats, apparently confident in the principle of the health insurance exchanges, called Grassley's bluff and his amendment became law.  So, starting in 2014, all members of Congress are legally required to purchase health insurance from the exchanges.

This makes no sense, however, because the exchanges are meant for individuals who are not offered insurance through their employer, and the law does not permit employers to make a contribution to insurance their employees purchase over the exchanges.  Members of Congress do get health insurance through their  employer--the federal government--but are somehow expected to use the exchanges.

This creates an odd paradox wherein members of Congress are both expected to utilize their employer-sponsored health insurance, yet legally required not to.  This paradox was ironed out earlier this year, when it was determined that members of Congress would purchase their insurance on the exchanges with the help of the federal government; the federal government will pay the current employer contribution towards Congress' health insurance, and each member of Congress will have to pay the rest of the bill for whatever plan they purchase on the exchanges.

For those making up to 400% of the poverty line, subsidies are available on a sliding scale to help purchase insurance.  Obviously, members of Congress are making more than 400% of the poverty line, and thus would not be eligible for this subsidy.

Ok, done with the background.  This entire fiasco has led to one of the most amazing works of cognitive dissonance I have ever encountered:

U6 Watch: June 2013

Update (8/1/2013): There was a problem with the image I used for the labor force participation rate graph.  Put in a different graph.

Image: A Google image search for "unemployment" found this cartoon (source)

Both political parties have an cynical, poverty-sustaining compromise on the economy.

Both have agreed to use the U3 measure of unemployment in measuring the performance of the economy.  However, this measure makes no sense whatsoever; for June, U3 unemployment rate stayed steady at 7.6%, making it appear that things aren't getting worse.  They are.

The U3 measure divides:

(number of people actively searching for work) / (number people who are working + number of people actively searching for work)

Notice what the U3 measure conveniently leaves out:

Sequestration's Latest Victim: The Constitution

Image: Beneficiaries of the bottom tier of the American welfare system (source)

Updates--see below

I previously wrote about a Wonkblog round-up of media accounts of programs getting axed by the sequester, and how the sequester persists only because these cuts are focused on the bottom tier of the American welfare state.  Contrast the harm the sequester inflicts on the poor with the fact that any sequester cuts that inconvenience the rich were quickly rolled back: few things could more effectively express who our government works for.

Jared Bernstein has been running a "Sequester Watch" on his always excellent blog, and I'm embarrassed to say I haven't been keeping up.  In installment #14, he rounds up accounts of specific programs being cut: various Head Start programs, inner city schools, mental health services for Native Americans, low income housing, Meals on Wheels, federal public defenders, and others.  This is poverty sustainment; not giving poor children the educational opportunities they need to succeed is an endorsement of their poverty.

Here's another link describing the effect on federal public defenders:

Federal defenders already were facing a 5 percent budget reduction when $85 billion in spending cuts began coursing through federal agencies in March, lopping another 5 percent from the budget this fiscal year. Some courts have limited the hours they hear criminal matters. Defenders across the country are taking up to 15 days without pay, forcing postponements in many criminal proceedings...

The court system’s alternative is to hire private, court-appointed attorneys to represent indigent clients, since by law they must get a lawyer. They are paid from the same pool of money as public defenders. But they cost more, and according to some studies, are less experienced and less effective.

Nachnanoff told lawmakers that public defenders are expecting another hit to their budget of more than 20 percent in the fiscal year that starts Oct. 1, which would almost surely result in layoffs.

In a letter to the Judiciary Committee, a group of 40 former judges and prosecutors urged Congress to fully fund the defender program.

“These ill-conceived measures undermine not only the Federal Defender system, but the entire federal judiciary, without achieving any real cost savings,” they wrote of the sequestration cuts.

All American citizens have a Constitutional right to a trial and legal representation.  There can be little doubt this right was being trampled before sequestration; there can be zero doubt now that this is now occurring.

But a closer look reveals the cynicism of the sequester: because public defenders are being furloughed, the federal government is actually paying more money for worse representation for poor criminals.  Can there be any question that this is a feature, and not a bug?  Does the American ruling class really find this a convincing argument:

Poor people accused of federal crimes are more likely to go to prison because of the sequester, and we need to help them get adequate legal representation.

or would they rather that poor people suffer from incompetent representation?  That legislators are willing to pay money to ensure worse representation shows that worsening public representation is a pleasant surprise of sequestration, and not an unfortunate casualty.  Constitutional rights are to be protected, but only for the rich.  Remember, we imprison people at a higher rate than the world's autocratic dictatorships:

Crack babies and convenient explanations of poverty

The Philadelphia Inquirer has a story on a 25-year-long longitudinal study of 224 children (110 actually participated for the full 25 years) that set out to show the dangers of uterine crack cocaine exposure to children.  Instead, they wound up showing the dangers of poverty:

At age 4, for instance, the average IQ of the cocaine-exposed children was 79.0 and the average IQ for the nonexposed children was 81.9. Both numbers are well below the average of 90 to 109 for U.S. children in the same age group. When it came to school readiness at age 6, about 25 percent of children in each group scored in the abnormal range on tests for math and letter and word recognition.

"We went looking for the effects of cocaine," Hurt said. But after a time "we began to ask, 'Was there something else going on?' "

While the cocaine-exposed children and a group of nonexposed controls performed about the same on tests, both groups lagged on developmental and intellectual measures compared to the norm. Hurt and her team began to think the "something else" was poverty.

Basically, the study determined that poverty is really bad for children.  It's not hard to think of better headlines for this story (Poverty Bad for Children: Science).

As the children grew, the researchers did many evaluations to tease out environmental factors that could be affecting their development. On the upside, they found that children being raised in a nurturing home - measured by such factors as caregiver warmth and affection and language stimulation - were doing better than kids in a less nurturing home. On the downside, they found that 81 percent of the children had seen someone arrested; 74 percent had heard gunshots; 35 percent had seen someone get shot; and 19 percent had seen a dead body outside - and the kids were only 7 years old at the time. Those children who reported a high exposure to violence were likelier to show signs of depression and anxiety and to have lower self-esteem.

Large, universal Scandinavian-style government welfare programs do not hurt the economy or unemployment

Image: Don't worry kids.  It turns out that alarm over your ability to strangle the American economic system was just hype. (source)

Note: This post is about social democracy.  If you don't know what social democracy is, first read this page on basic social policy.

Several arguments are typically leveled against social democracies.  The most common objection is that universal social welfare programs are simply too large, and thus are a drag on the economy.  Having large programs like universal health care, universal child care, and universal old age and disability insurance thus result in slow economic growth, and thus high unemployment.  So, while these programs may be nice to have, the resulting slow economic growth and high unemployment make them more trouble than they're worth.  The second most common argument is that social democracies really aren't that much better at promoting social welfare.  Are the sacrifices to the economy really worth it for a populace that's only marginally better off?

Navarro and Shi (2001) looked directly at these two (related) criticisms by comparing health and economic indicators of all advanced countries with the four basic types of welfare systems (liberal, Christian democrat, social democrat, and fascist), over four decades (1950's through 1990's).

Supreme Court rules section 5 of voting rights act unconstitutional based on liberty vs. justice lie

Image: Justice Roberts, the author of the majority opinion in Shelby County v. Holder (source)


I realize I'm pretty late to the game in commenting on the Supreme Court's Voting Rights Act, but because discussion about it has relied so heavily on a key justification used in social policy--the freedom (or liberty) vs justice lie--I think that "better late than never" is true here.

Whenever a policy is justified based on appeals to someone's liberty or freedom, an extreme degree of skepticism is warranted.  Except in cases of national security, which truly does whittle away at the freedoms of all (while hacking away at the freedom of Muslims who have done nothing wrong), or giving the right to marry to homosexuals (which does nothing to limit anyone else's freedom), or a few other examples, one group's gain of liberty is usually only possible with another group's loss of liberty.  The claim is always made that we must sacrifice social justice in the name of liberty, but that claim is rarely true; rather, liberty is redistributed, not created.

The Supreme court ruling in Shelby County v. Holder, in which section 4 of the Voting Rights Act (VRA) was ruled unconstitutional, perfectly illustrates this point.

McDonald's sample budget and convenient explanations of poverty

(Updated below)

I can't comment any more thoroughly on the sheer inanity of McDonald's sample monthly budget for minimum wage employees than Annie-Rose Strasser did over at Think Progress.  It's worth reading in full.  But it's also worth noting that I have never seen a better example of the typical underlying assumption of American poverty.

What is most amazing about this budget is that it was put out without any sense of irony.  The people who published this clearly think it is reasonable--why else would they have published it?  And yet, this is the most effective indictment of McDonald's wage policies there could possibly be.  Twenty dollars for health insurance?  Zero dollars for heating?  No money allotted for food?  The only way to make a McDonald's job look like a livable wage is to make absolutely absurd assumptions.  There can be no more effective indictment of McDonald's wage practices than this--try for yourself to make a life out of this; of course you can't.  If McDonald's policies were intentionally malicious, they would never have published this.

No, Stand Your Ground is working exactly as planned

(Image source)

The basic premise behind this entire blog is that our government usually gets the policy outcomes it desires--but that the stated policy goals rarely line up with the actual policy goals.

Such is the case with Stand Your Ground laws.  Katie Halper at Salon has piece examining the racial biases in the enforcement of these laws in Florida and generally:

The Tampa Bay Times found that defendants claiming “stand your ground” are more successful if the victim is black. Seventy-three percent of those who killed a black person faced no penalty. Only 59 percent of those who killed a white person got off. The Urban Institute determined that in “stand your ground” states, when white shooters kill black victims, 34 percent of the resulting homicides are deemed justifiable. When black shooters kill white victims only 3 percent of the deaths are ruled justifiable.

Links worth reading

How's that whole Obamacare thing going?

"I want to cover everybody.  Now, the truth is unless you have what's calle d asingle-payer system in which everyon'es automatically covered, you're probably not going to reach every singel individual."
-Barack Obama, July 22, 2009

We seem to get new information every week confirming the worst fears of opponents of Obamacare from the left--it's a massive sellout to the health insurance industry at the expense of the uninsured.

Breathtaking piece about rural food insecurity

This piece should be read in full; children whose mother cannot feed them, who cannot concentrate in school because of hunger, whose brains turn to mush over the summer from utter lack of stimulation while rich school children elsewhere benefit from summer enrichment opportunities.  Their mother works a full time job.

The United States is not a country where anyone can be successful.  It is a country where its most vulnerable citizens are allowed to starve, and are then demonized by politicians for their suffering.

What is social democracy?

Image: Beneficiaries of Finland's social democratic welfare state (source)

I'm working on a few pieces that I realize won't be accessible to those without a basic working knowledge of social policy.  So, this post is a primer on social policy basics.  If you know all of these terms (Christian democrat, social democrat, residual, means testing, universal), you should probably skip this post.  If not, read on!

Checklist for profitable business: quality product, solid management & marketing teams, and high unemployment

Image: Construction workers "lucky" enough to have the privilege to work for low wages (source)

It's no secret that unemployment is still very high.  There are still 3.1 job seekers for every one job opening.  And things are even "worse" for the construction industry, where there are 12 job seekers for every 1 job opening:

Indeed, construction workers have been especially hard hit by the Great Recession and "recovery."  Setting aside the problems with the measure, the overall unemployment rate is 7.6%; for construction workers, the unemployment rate is 13.2%, and topped out at over 27%.  Most of the drop in unemployment is not due to these workers finding construction jobs, but with huge numbers of workers giving up.  Whether these workers successfully found work in other employment sectors matters little to the point of this post (most didn't)--but the obvious fact remains that huge numbers of workers skilled in construction are ready and willing to work.  Again, with 12 construction job seekers for every one construction job opening--double that number if you count the workers who have given up looking for construction jobs--there is no question that we have more skilled construction workers available than we can possibly use.

So why did the construction lobby fight to bring in foreign construction workers?  Current law caps work visas for immigrant guest workers at 15,000; the construction lobby fought (and failed) to get that cap eliminated.  Why, when there are so many idle, unemployed construction workers ready and willing to work, would the construction lobby possibly want to bring in more?

The reason the construction industry wants more foreign guest workers is because high unemployment keeps wages low.  When unemployment is high and workers are desperate for work, businesses can pay workers less than they're worth.  "You want $30,000 per year, plus health insurance?  Why should I hire you when Bob is willing to work for $20,000 without benefits?"  High unemployment = low wages.  This is basic economics.

Links worth reading

I'm working on a few posts right now, but I wanted to post a couple things I've come across that I think are worth reading, but probably won't be able to use.

First, a surprisingly thorough summary of criticism of Burkhauser et al's paper arguing that inequality has decreased from 1979-2007 by Tom Edsall.  Edsall reached out to a huge number of economists of different leanings and put together a surprisingly comprehensive round-up of reactions.

Sequestration persists because it only affects the bottom tier of American welfare

Image: Beneficiaries of the bottom tier of the American welfare system (source)

Updated below

Over at Wonkblog, Brad Plumer has a very instructive round-up of Americans starting to wake up and notice the sequester.  According to survey data, an increasing minority of Americans are feeling the sequester's impact.  Some are even feeling a "major impact."

While his round-up is based on media reports and should not be considered a complete summary of everyone affected by the sequester, the examples he has unearthed are extremely telling.  Watch how, in every case he cites, the sequester only affects a small group of politically underrepresented Americans--that is, it only affects the bottom tier of America's two-tiered welfare system.  That is why the sequester will persist--not because its effects aren't bad, but because it only affects groups lacking in political influence.  If anyone doubts that fact, note that Plumer starts by pointing out that cuts to air traffic controllers were quickly reversed.  Obviously, a cut that inconveniences air travelers is a cut that affects the rich but not the poor.  Obviously, our political system cannot permit such a cut, and it was quickly reversed.  At the end, he also notes that cuts to meat inspections have been reversed; any cut that could potentially kill rich people (or at least give them diarrhea) can obviously not be permitted, either.  That it also benefits poor people is incidental to it helping the rich.

Here are the examples cited:

Updates

I hope to write more regularly starting this week.  Until then, here are a couple of links worth reading:

• Wonkblog's summary of the ACLU report detailing incredible differential arrest rates based on race
• BBC piece on a Finnish social democratic maternity policy

The goal of the US tax system is to maximize cheating for the 1%

Neil Irwin has a great post up today about how easy it could be to do taxes:

For millions of Americans, the IRS already knows most, or even all, of what it needs to know to enable you to complete your income taxes. Your employer reports how much it paid you in wages to the taxman; your brokerage firm reports how much stock dividend income you received; your bank tells the IRS how much you paid in deductible home mortgage interest.

So wouldn’t it be great if you could log into IRS.gov and see a form with all that information already plugged into a 1040? You could then add or update any other relevant information (say, a charitable deduction that did not get reported), and hit “send.” For millions of people with relatively simple tax situations, filing annual income taxes would be no more punishing than paying a parking ticket online...There have been bipartisan proposals in Congress to create exactly such a program of “return-free filing,” including a 2011 bill proposed by Sens. Ron Wyden (D-Ore.) and Dan Coats (R-Ind.). It seems like the kind of sensible, modest thing the government can do to make peoples’ lives quite a bit simpler.

Confusing budget baselines is a feature, not a bug

 Image: Paul Ryan and the Path to Prosperity (source)

Dylan Matthews over at Wonkblog has made a heroic effort to compile data from the different budgets.  He details in this post why, exactly, this is so difficult:

All of which is to say is that seemingly simple questions about the budget, like “Does Obama or Ryan cut the Medicare budget more over 10 years?” are rather hard to answer honestly. And that’s leaving out dumb mistakes that get made when you’re trying to get the data out fast. For example, when I was entering numbers for Social Security yesterday, I took care to subtract out the $130 billion in cuts due to chained CPI. Only I cut them from the baseline, not the actual program spending. So what is actually a cut looked like a spending increase. Derek Thompson alerted me to the issue and it got fixed, but the damage was done.

That was a stupid mistake on my part, and I should have done better. But policymakers should do better, too. The reason we have institutions like the CBO is so we can have a common set of assumptions about what policies are going to take effect, what the economy is going to look like and so forth, to enable easier comparisons between policies. So it’s mildly infuriating when institutions like the OMB work at cross-purposes and make it harder for citizens to understand exactly which politicians want to cut what from what.

But Matthews, I think, misses the entire point.  Politicians want people to be confused about their budgets.  How could citizens support budgets if they actually knew what was in them?  I'll use Paul Ryan as an example, because he basically owes his career to being able to obscure his true intentions in confusing budgets.  Here is Paul Krugman calling him out in 2010:

Updates

Photo: When the NRA was against 2nd amendment rights.

Unfortunately, I have not been able to work on this blog as much as I had thought.  Expect sporadic posting until June.

Here are a few links I think are worth reading that I know I won't have time to write about:

The problem with Alan Simpson [and Washington and the media]
When the NRA supported gun control
Florida's Stand Your Ground law

Recovery going according to plan

I am often criticized for making claims like "recovery going according to plan," as if there is a room full of evil, old white men dressed in tailored business suits, sitting around a mahogany table, plotting on how to enrich the 0.01% at the expense of everyone else.

In practice, our political system only responds to the needs of the wealthy, so any concerns of the poor or jobless largely get ignored:

Perhaps the most shocking study the authors cite comes from Martin Gilens, a political scientist at Princeton University. Gilens has been collecting the results of nearly 2,000 survey questions reaching back to the 1980s, looking for evidence that when opinions change, so too does policy. And he found it—but only for the rich. “Most policy changes with majority support didn’t become law,” Hacker and Pierson write. The exception was “when they were supported by those at the top. When the opinions of the poor diverged from those of the well-off, the opinions of the poor ceased to have any apparent influence: If 90 percent of poor Americans supported a policy change, it was no more likely to happen than if 10 percent did. By contrast, when more of the well-off supported a change, it was substantially more likely to happen.”

For example, the fact that there are 3.3 job seekers for every job opening (and the fact that it has been this bad or worse since 2009) is not a problem our political system cares to solve because it does not affect the rich.  Joblessness has been a problem for years; Wall Street didn't have to wait years to get bailed out.  Similarly, the fact that the Great Recession and "recovery" resulted in the replacement of middle class jobs with low income jobs is a good thing to the ruling class, not a bad thing (60% of job losses in the Great Recession were middle class jobs, whereas just 27% of jobs created since the "recovery" started are middle class jobs; 58% of jobs created since the "recovery" are low wage jobs).  This is a great recovery for the rich, but bad for everyone else.

The immigration debate and further exposure of the liberal Democrat myth

Image: Latino protesters against President Obama's immigration policy (source)

I hope to write much more about immigration reform as the debate unfolds.  But the question that progressives conveniently ignore is the question of who undocumented immigrants actually have in their corner.

The myth of the liberal Democrat extends to immigration.  Listen to progressives, and Republicans are cruel xenophobic reactionaries happy to allow businesses to exploit undocumented labor, while Democrats like Obama defend the human rights of the oppressed.  Interesting, then, that, as President, Ronald Reagan signed into law a bill that ultimately provided amnesty to 3 million undocumented immigrants:

Reagan "knew that it was not right for people to be abused," Simpson says. "Anybody who's here illegally is going to be abused in some way, either financially [or] physically. They have no rights."

Reagan said [so] in a televised debate with Democratic presidential nominee Walter Mondale in 1984.

"I believe in the idea of amnesty for those who have put down roots and lived here, even though sometime back they may have entered illegally," he said.