Pay-go rule proves Nancy Pelosi and the centrist Democrats do not think Medicare for All is a good idea

The Intercept reports that centrist Democrats will include a pay-as-you-go rule for the House of Representatives. The Intercept and others have done a fine job explaining what this does; I don't need to repeat the details here. In brief, pay-go makes it nearly impossible to create new social spending, without putting up any hurtles to cutting taxes.

Progressive and further left Democrats were immediately up in arms, pointing out that this rule will make progressive and socialist goals, like Medicare for All or dealing with climate change, all but impossible to pass. This frustration is captured in a quote provided to the Intercept by a spokesperson for the progressive Justice Democrats:

“There’s enormous appetite in the Democratic Party and among all Americans for major public investment to tackle our nation’s major crises: deepening inequality and structural racism and climate disaster,” said Waleed Shahid, communications director for Justice Democrats, in a statement to The Intercept. “Pelosi and the Democratic Party leadership’s support of Paygo makes actually solving these crises all but impossible. The Democratic Party leadership is unilaterally disarming and shooting themselves in the foot.”

Disarming themselves? Shooting themselves in the foot?

Pelosi and the other centrist Democrats are not stupid. Pelosi is without exception one of the most talented lawmakers in the history of Congress. There is no legislator more talented than Pelosi. She and the other centrist Democrats know exactly what they are doing; to argue otherwise is to assume stunning levels of incompetence of a group we have no reason to believe is incompetent.

So why is it so important to centrist Democrats like Pelosi that pay-go pass? Because they don't think Medicare for All is a good idea. That pay-go will stop Medicare for All from passing is not a downside of pay-go. It is the entire reason they desire pay-go.

If we assume that centrist Democrats want Medicare for All and wish to stop climate change, then pay-go makes no sense. But if we assume that they do not think these things are a good idea--and pay-go prevents these things from being implemented--then pay-go makes perfect sense.

Actually, Jacobo Arbenz was a communist, and so was the Guatemalan land reform (Part 2)

Image: A 1951 rally supporting Guatemalan President Jacobo Arbenz (source)


Part 1 of this series explained the history and theory behind the Guatemalan land reform act, Decree 900, as well as its successes before American-sponsored coup de etat ended both Decree 900 and democracy in Guatemala. In brief, Decree 900 used a principle similar to eminent domain in the United States, wherein the government forced landowners to sell land at 100% of its value (as the landowners themselves had indicated on their tax forms). However, Decree 900 only allowed for the forced sale of unused land; any land a landowner was using could not be taken. The government distributed this land to poor Guatemalans and provided them with low interest loans to start a new farm and create a happy livelihood.

If it were a simple matter of losing some unused land (and being compensated for it), extremely profitable producers like United Fruit would have written off the loss and moved on. But Decree 900 was more than a negligible business loss. First, it altered the macroeconomics of Guatemala, changing the ratio of job seekers to job openings. With fewer job seekers relative to job openings, this put upward pressure on wages, cutting into the profits of United Fruit and other landowners. And furthermore, Decree 900 called into question the power structures surrounding macroeconomic policy, full employment, wage labor, and private property. If ordinary Guatemalans realized that they could improve their lives by voting to change the rules governing economic or property relationships, what might follow this relatively modest, initial reform? Apparently, United Fruit preferred to end democracy than find out.

The initial coup de etat occurred in 1954. The democratically elected government of President Arbenz was overthrown, and a military dictatorship replaced it. The American government funded this military dictatorship for decades, also arming its military and training its soldiers and death squads at the School of the Americas. 200,000 Guatemalans died in the conflict which lasted until 2001--nearly half a century--all because United Fruit (now Chiquita Banana) was forced to sell some land it wasn't using.

A truth commission sponsored by the Catholic Church--which had ironically opposed the land reform that triggered the intervention in the first place--found that nearly 90% of atrocities were committed by government forces (the military dictatorship that replaced Arbenz and the Guatemalan Congress) while less than 5% were committed by the guerrillas (with the remainder unclear who was responsible). For revealing this truth, the Archbishop of Guatemala City was brutally assassinated, bludgeoned to death in his own home. A later report by the UN attributed 93% of atrocities to the government and 3% to the guerrillas.

Among this sordid history, the issue I wish to address is the tendency for American commentators to condemn American actions because the Guatemalan government was not communist. According to this perspective, United Fruit and the CIA played on President Eisenhower's fear of the Soviets to get him to authorize the coup de etat. They falsely argued to the Eisenhower administration that President Arbenz was a communist in order to justify the invasion. But because these were lies--because President Arbenz wasn't a communist and Decree 900 wasn't a communist plot--this intervention was unjust.

This recent New York Times op-ed by Stephen Schlesinger is typical in this regard. Let's look at his key points, one by one. He starts out condemning American atrocities:

Actually, Jacobo Arbenz was a communist, and so was the Guatemalan land reform (Part 1)

Image: A mural in Guatemala City commemorating President Jacobo Arbenz and Decree 900. (source)


In 1952, democratically elected Guatemalan President Jacobo Arbenz signed into law Decree 900, passed by the democratically elected Guatemalan Congress. Decree 900 bought 1.5 million acres of land from private owners and distributed it to 500,000 Guatemalan families, or about one sixth of the population of Guatemala. The purchase of these 1.5 million acres of land was not voluntary, yet it was fair to landowners. Similar to the principle of eminent domain in the United States, the Guatemalan government paid the owners 100% of the value of the land that they themselves had indicated on their tax returns. And, the Guatemalan government only forced the sale of land that was not being used by its owners. Legally, any land that was actually being used by its owners could not be taken.

The logic of Decree 900 was very straightforward:

• Those who do not have ownership of their own capital (in this case, land to cultivate) can be exploited.
• Those who own large amounts of capital tend to manipulate the political and economic system for their own benefit.

This assessment was very accurate in Guatemala.

First, wages for rural Guatemalans were extremely low, at or below sustenance level. Because poor, rural Guatemalans did not own land, they had to work for wages for people who did. Given the choice between working for wages and starvation, this lack of ownership opened poor Guatemalans to terrible exploitation.

Furthermore, just 2% of the population owned 70% of the land of Guatemala. The American company United Fruit alone owned a staggering 42% of the total landmass of Guatemala, including some of the most productive farmland in the entire world on Guatemala's west coast. Obviously, the ownership of so much of Guatemala's productive capacity by so few concentrated a great deal of power in very few hands.

These wealthy, powerful landowners had used their power to manipulate Guatemala in order to further increase their profits. Most obviously, they carved out special rules for themselves. United Fruit, for example, had been able to secure exemptions for its massive profits from nearly all taxes. Despite owning nearly one half of the landmass of Guatemala, they paid nearly nothing to support the country.

A better world is impossible without demilitarization and an end to war

Image: Martin Luther King breaks his silence about the Vietnam War at Riverside Church in New York City, April 4, 1967. (source: public domain)



Note: Throughout, this series, I put the word "enemies" in scare quotes. I do this in keeping with the socialist tradition which notes that the ruling classes make wars to enrich or entertain themselves, while sending those they rule to fight and die in them. A slogan of the 1916 Irish Easter Rising was:

The socialist of another country is a fellow patriot! The capitalist of my own country is a natural enemy!

This post is an introduction to a series on antiwar issues. There is a tendency among liberals to view all left-of-center movements as independent--particularly movements against war and in favor of disarmament. What does an end to the war in Afghanistan have to do with, say, disparities in primarily education? This view was most famously criticized by Martin Luther King:

Over the past two years, as I have moved to break the betrayal of my own silences and to speak from the burnings of my own heart, as I have called for radical departures from the destruction of Vietnam, many persons have questioned me about the wisdom of my path. At the heart of their concerns, this query has often loomed large and loud: “Why are you speaking about the war, Dr. King? Why are you joining the voices of dissent?” “Peace and civil rights don’t mix,” they say. “Aren’t you hurting the cause of your people?” they ask...

I come to this platform tonight to make a passionate plea to my beloved nation. This speech is not addressed to Hanoi or to the National Liberation Front. It is not addressed to China or to Russia. Nor is it an attempt to overlook the ambiguity of the total situation and the need for a collective solution to the tragedy of Vietnam. Neither is it an attempt to make North Vietnam or the National Liberation Front paragons of virtue, nor to overlook the role they must play in the successful resolution of the problem. While they both may have justifiable reasons to be suspicious of the good faith of the United States, life and history give eloquent testimony to the fact that conflicts are never resolved without trustful give and take on both sides. Tonight, however, I wish not to speak with Hanoi and the National Liberation Front, but rather to my fellow Americans.

Since I am a preacher by calling, I suppose it is not surprising that I have seven major reasons for bringing Vietnam into the field of my moral vision. There is at the outset a very obvious and almost facile connection between the war in Vietnam and the struggle I and others have been waging in America. A few years ago there was a shining moment in that struggle. It seemed as if there was a real promise of hope for the poor, both black and white, through the poverty program. There were experiments, hopes, new beginnings. Then came the buildup in Vietnam, and I watched this program broken and eviscerated as if it were some idle political plaything on a society gone mad on war. And I knew that America would never invest the necessary funds or energies in rehabilitation of its poor so long as adventures like Vietnam continued to draw men and skills and money like some demonic, destructive suction tube. So I was increasingly compelled to see the war as an enemy of the poor and to attack it as such.

Perhaps a more tragic recognition of reality took place when it became clear to me that the war was doing far more than devastating the hopes of the poor at home. It was sending their sons and their brothers and their husbands to fight and to die in extraordinarily high proportions relative to the rest of the population...

To update this message for current levels of military spending, Demos created a striking graphic to drive this point home:

Actually, I don't find that graphic as striking as it could be. Circular graphs tend to be misleading, so I made a fan graph:

Also: we're set to spend $1 trillion on nuclear weapons (emphasis added):

Isn’t it rather odd that America’s largest single public expenditure scheduled for the coming decades has received no attention in the 2015-2016 presidential debates?

The expenditure is for a 30-year program to “modernize” the US nuclear arsenal and production facilities. Although President Obama began his administration with a dramatic public commitment to build a nuclear weapons-free world, that commitment has long ago dwindled and died. It has been replaced by an administration plan to build a new generation of US nuclear weapons and nuclear production facilities to last the nation well into the second half of the 21st century. This plan, which has received almost no attention by the mass media, includes redesigned nuclear warheads, as well as new nuclear bombers, submarines, land-based missiles, weapons labs and production plants. The estimated cost? $1,000,000,000,000.00 — or, for those readers unfamiliar with such lofty figures, $1 trillion.

Critics charge that the expenditure of this staggering sum will either bankrupt the country or, at the least, require massive cutbacks in funding for other federal government programs. “We’re… wondering how the heck we’re going to pay for it,” admitted Brian McKeon, an undersecretary of defense. And we’re “probably thanking our stars we won’t be here to have to have to answer the question,” he added with a chuckle.

Obamacare was a failure

With Obamacare sure to be repealed by President-elect Donald Trump and a Republican Congress, it's worth considering what Obamacare's legacy will be: a demonstration of both the folly of health care reforms that preserve the profit motive or emulate free markets, as well as the urgent need for single payer.

Before we take each of Obamacare's fundamental failures in turn, it's worth pointing out that--not only would single payer have avoided all of the failures of Obamacare, but it would have cost far, far less. I've covered at length the mammoth inefficiencies of Obamacare, the American health care system generally, and any market-based system for social welfare provision, in comparison to slim and efficient universal social welfare systems like single payer.

Failure #1: Uninsurance
The biggest goal of health care reform was to reduce the United States' massive uninsurance rate, a problem without parallel in the developed world.

Yet Obamacare was never intended to be a universal health care system. The framers of Obamcare intended to leave a large portion of Americans without health insurance. I've written at length about how Obamacare was expected to--at best--only cut in half the uninsurance rate. There's no need to rehash these arguments here.

But as President Obama himself acknowledged in an article he wrote for the prestigious Journal of the American Medical Association (JAMA), Obamacare failed to even cut the uninsurance rate in half; it was reduced from 16% in 2010 when the law was passed to 9% in 2015:

Since the Affordable Care Act became law, the uninsured rate has declined by 43%, from 16.0% in 2010 to 9.1% in 2015, primarily because of the law’s reforms.

There's not really anything else to say here. Single payer would have achieved a 0% uninsurance rate. As Obama himself said in 2009, nearly a year before he signed Obamacare into law,

I want to cover everybody. Now, the truth is that unless you have what's called a single-payer system in which everybody is automatically covered, then you're probably not going to reach every single individual.

Obamacare failed on uninsurance, but, then again, it never really set out to succeed.

Failure #2: Underinsurance
In a critique of Obama's JAMA article, Adam Gaffney notes:

One issue Obama does briefly address is the frequently heard critique that the ACA has bolstered the rise of health-care cost-sharing: the payment due at point of use that includes things like copayments, deductibles, and coinsurance. High cost-sharing means the underinsured frequently avoid going to needed doctor’s appointments, having important tests run, or even visiting the emergency room. When they do, they are often left with punishing bills.

While admitting that deductibles have been rising, Obama asserts that the rate of increase has not changed. But he misses the point: the argument isn’t that the ACA created “underinsurance” — it’s that it didn’t reduce it, much less eliminate it, which should be our real goal.

Not much more to say here either. Single payer would have reduced the underinsurance rate to 0% instead of continuing the trend of shifting more and more of the cost of health care upon ordinary Americans.

Failure #3: Only government insurance was effective
Obamacare expanded insurance in two ways--a boring way, and a sexy, innovative way.

The boring way was simply allowing more people to enroll in Medicaid.

The sexy, innovative way was giving people who couldn't get health insurance through their employer (or through the government) a cash subsidy to purchase private health insurance. This caused significant buzz in 2009, because--in theory--once ordinary people were able to afford coverage for themselves and their family, they would be empowered to choose the private insurance plan that was right for them. In this way, Obamacare was supposed to harness the power of free markets to reduce health insurance costs. When people could purchase the best plans for the lowest cost, those insurers would be rewarded with more customers and their competitors would be forced to improve their products or else go out of business for want of customers.

This system of subsidies for beneficiaries and competition for private plans was called the Health Care Exchanges, which were most famously accessible online through a state Exchange (like NY State of Health, KYnect, etc), or the federal Exchanges (healthcare.gov) for residents of states that did not set up a state Exchange.

Which was better? Boring old Medicaid or the innovative Exchanges?

While considerable attention has been paid to the exchanges, they have so far contributed only modestly to the aggregate increase in coverage—accounting for 11 percent of the 8.38 million-person net increase in health insurance enrollment during the first three quarters of 2014. The other 89 percent of net enrollment growth during that period came from the expansion of Medicaid.

Yes, anxiety about the economy explains the rise of Donald Trump

Updated below

Digby rounds up some links arguing that economic anxiety does not explain the rise of Trump.

She blockquotes Philip Klinkner:

You can ask just one simple question to find out whether someone likes Donald Trump more than Hillary Clinton: Is Barack Obama a Muslim? If they are white and the answer is yes, 89 percent of the time that person will have a higher opinion of Trump than Clinton.

That’s more accurate than asking people if it’s harder to move up the income ladder than it was for their parents (54 percent), whether they oppose trade deals (66 percent), or if they think the economy is worse now than last year (81 percent). It’s even more accurate than asking them if they are Republican (87 percent).

Those results come from the 2016 American National Election Study (ANES) pilot survey. My analysis indicates that economic status and attitudes do little to explain support for Donald Trump.

They both misunderstand the meaning of these data.

Klinkner argues that if anxiety about the economy explains the rise of Trump, then everyone worried about the economy should support Trump. For those who answered 'yes' to the economic anxiety question ("...if it’s harder to move up the income ladder than it was for their parents"), only about half (54%) support Trump. That's statistically meaningless--a coin flip. Klinkner interprets this to mean that economic anxiety cannot explain the rise of Trump; among people with high economic anxiety, about half support Trump and half don't. There's no relationship between economic anxiety and support for Trump.

But this conclusion is ridiculous. Noting that half the people who are worried about the economy support Trump does not mean that Trump supporters aren't motivated by anxiety over the economy. It might mean that one's views on the economy are unrelated to support for Trump, but it could also be that about half of the people worried about the economy have been driven to the far right--to Trump--and everyone else worried about the economy has reacted in other ways.

Indeed, in times of economic crisis, societies sometimes undergo left-right polarization. These data are consistent with a left-right polarization: the reason that only half of the people worried about the economy support Trump is not because support for Trump is unrelated to the economy, but rather because the other half has lurched leftward, towards Sanders.

An analogy might be helpful. Let's substitute "vitamin C deficiency" for the economy, "oranges" for Trump, and "green peppers" for Sanders.

Two of the best sources of vitamin C are green peppers and oranges. Instead of asking people if they are worried about the economy, we've asked who is worried about vitamin C deficiency. Let's say exactly 100 respondents say they are worried about vitamin C deficiency. Of those, 54 respondents report eating extra oranges, while most of the remaining 46 report eating extra green peppers.

By the logic of Klinkner and Digby, eating oranges in unrelated to vitamin C deficiency: since only half of respondents worried about vitamin C deficiency are eating extra oranges, vitamin C deficiency cannot be motivating people to eat extra oranges. But that's clearly ridiculous; about half of people worried about vitamin C deficiency have chosen to eat extra oranges while the other half decided to eat extra green peppers instead. Just because only half the people have chosen oranges does not mean that their decision is not motivated by anxiety over vitamin C deficiency.

Let's cut and paste that above paragraph with economy, Trump, and Sanders sprinkled in:

By the logic of Klinkner and Digby, eating oranges in unrelated to vitamin C deficiency. Since only half of respondents worried about vitamin C deficiency (the economy) are eating extra oranges (supporting Trump), vitamin C deficiency (the economy) cannot be motivating people to eat extra oranges (support Trump). But that's clearly ridiculous; about half of people worried about vitamin C deficiency (the economy) have chosen to eat extra oranges (support Trump) while the other half decided to eat extra green peppers (support Sanders) instead. Just because only half the people have chosen oranges (support Trump) does not mean that their decision is not motivated by vitamin C deficiency (the economy).

If so, this means that Klinkner's causality is all wrong. He notes high levels of racial resentment predict support for Trump. He and Digby interpret this to mean that high levels of racial resentment is causing support for Trump, while economic concerns are unrelated. But the data don't show that. These data on racial resentment would also be consistent with left-right polarization. Among those worried about the economy, about half have begun blaming their problems on minorities and immigrants, and find an outlet for their racist/xenophobic beliefs in Trump. The other half has begun to blame capitalism for their problems and has found their outlet in Sanders' socialism. If left-right polarization is occurring, this is exactly what we would expect: a large portion of respondents with anxiety over the economy, and the half that blames minorities and immigrants supports Trump whereas the half that blames something else are against Trump. All that racism and xenophobia didn't just appear out of thin air.

Actually, paternalism in factor income is not at all unprecedented

Matt Bruenig has an interesting post on his Demos blog. In a nutshell, he asks why so many people believe transfer income should be treated very differently than wages. He quotes a Washington Post editorial by Michael Strain:

If we take money from John to give to Matthew, who would starve without it, then we owe it to John to make sure that his money is appropriately spent on Matthew’s food and shelter, not on Matthew’s alcohol and gambling.

And Bruenig asks why the same paternalism shouldn't apply to wages spent on alcohol or gambling?

But wait! Paternalism used to be the norm for waged labor!

Here's a 1931 article on Henry Ford's "shotgun gardens," so-called because employees were forced to keep them or they would be fired. Here is a quote from Henry Ford's actual press release introducing the policy:

"Next year, every man with a family who is employed at the plant will be required to have a garden of sufficient size to supply his family with at least part of its winter vegetables. Those who do not comply with the rule will be discharged. The man too lazy to work in a garden during his leisure time does not deserve a job. When the people of our country learn to help themselves they will be benefited far greater than they would be by employment insurance. If our agricultural plan is adopted throughout the country, the dole need never be thought of."

This sort of thing was really common. In The Invention of Capitalism, Michael Perelman quotes the welfare secretary of the steel giant American Iron and Steel Institute: 

regulation of his meals, the amount, the character and the mastication of them, the amount and character of drink, the hours of rest and sleep, the ventilation of rooms . . . washing of hands before meals, daily washing of feet, proper fitting of shoes, amount and kind of clothing, care of the eye, ear and nose, brushing of the teeth, and regularity of the bowel. (cited in Montgomery 1979, 40)

Yes, this company had a welfare committee (or in other words, a paternalism committee).

Why such paternalism? An early economist, James Steuart, calculated that a two full days' work at the going wage rate in Scotland was enough to support that worker (not the worker's family--just the worker) for one day. Families had to support themselves by gardening and selling products they could make by hand, such as handloom weaving. (For the record, Steuart didn't consider such sub-poverty wages a problem; he viewed it as a great efficiency, a triumph of the free market).

No, the United States does not have the best health care in the world

In the popular imagination, the United States provides very high quality health care services--but only to those who can afford it. In the popular imagination, health care is the one shining exception of the American social welfare state--the one area of social welfare where the United States boasts higher quality services than the rest of the world. This is a myth.

First, the United States is middling at best among peer countries for rates of disease survival. And second, care is demonstrably of very low quality:

According to a recent RAND study published in the New England Journal of Medicine, uninsured patients receive only 53.7 percent of the care experts believe they should get—that is, appropriate, evidence-based treatment. But according to the same study, patients with private, fee-for-service insurance are even less likely to receive the proper care...

In addition to overtreatment and undertreatment, there is also flat-out mistreatment. Consider the following statistics: The Institute of Medicine estimates that lack of health insurance among people aged twenty-five to sixty-four causes 18,000 premature deaths annually, which is appalling. But the Institute of Medicine also estimates that up to 98,000 Americans are killed in hospitals every year by medical errors. In 2006, the IOM issued a new study that found that hospital patients in the United States experience an average of at least one medication error, such as receiving the wrong drug or the wrong dosage, every day they stay in the hospital.

All told, according to the RAND study, Americans receive appropriate care from their doctors only about half of the time, and the results are deadly. In addition to the 98,000 killed by medical errors, another 126,000 die from their doctor’s failure to observe evidence-based protocols for just four common conditions: hypertension, heart attacks, pneumonia, and colorectal cancer...

Actually, even rich people would be better off in a social democracy

It's often assumed that rich families have nothing to gain from a social democratic social welfare system. To see if that's actually true, I'm repeating the analysis I did for a median income household for richer households. These are the key tables for a median income family:

Clearly, median income households are much better off in social democracy than in the American social welfare system. Though taxes are much higher in the social democratic system, the enormous out-of-pocket spending American households must spend on social welfare easily outweighs those higher taxes. Once we account for the private, out-of-pocket spending in the American social welfare system, it becomes obvious that the high taxes of the social democratic social welfare system are a very good deal for most families.

However, the same might not be true for rich families. Perhaps rich families can afford high out-of-pocket spending and would actually be financially better off with the high out-of-pocket spending and low taxes of the American social welfare system.

To find out, let's repeat this analysis using the exact same methods as median income, but for a rich household. We'll do the analysis for a household at exactly the 90th percentile for income. If over 90% of Americans would be better off under social democracy, that should be pretty convincing.

Revisiting the cost of the welfare state for individual households in the United States and the social democracies

Image: But can your social welfare spending buy this?!?!? (Northern lights over Saurbaer, Iceland / flickr user benhusmann)



I'm revisiting this 2014 post for two reasons. First--and most importantly--I did not realize when I first wrote it how important it was, so I outlined general trends and was not super careful about my analysis. My aim was to point out the hypocrisy of crying foul at the high tax rates of the social democracies even though a typical American is far worse off due to the high cost of private social welfare services. 40% taxes may seem high, but a median income American family can expect to spend over 60% of their income on federal (income plus payroll) taxes, employer-sponsored health insurance, and recommended savings for retirement alone--and this doesn't even include student loans payments (an additional 11% of income on an income-based repayment plan), day care services (up to 30% of income depending on the state), or other common social welfare costs. You don't need super careful analysis to make this point.

Second, some OECD links I used are now broken and so it's no longer clear where the data are coming from.

I'm keeping the original post up because it has some research which I don't need to repeat. But here, I'm going to be less sloppy on my analysis of labor costs and social welfare contributions.

You can read this page alone and consult the original post for links that didn't make it into this post. Before beginning, recall that median income in the United States is pretty similar to the social democracies. Here is the revised table for median income households (click for unobscured image):

The blue percentages at the top of the table are expressed as a percentage of gross labor costs. For the American side, this means:

At first, it might seem reasonable to consider at what a typical family earns in income, then consider what percentage of that income they pay in taxes and for social welfare. But this is misleading, for two major reasons. I call this the "sticker price" of the social welfare state--the cost of the social welfare state that a typical individual or family sees, but not the cost that they actually pay.

The first reason why the sticker price is misleading is because it comes nowhere near the total cost of the welfare state for this family. The sticker price ignores many costs that support this family's social welfare benefits and services: the cost of employer contributions to Social Security, Medicare, and employer-sponsored health insurance, for example. Since these are costs that support the social welfare needs of this family, it makes no sense to ignore them.

Second, it simply makes no sense to think of individual labor costs as somehow different from each other. It makes no difference to an employer--whether American or Scandinavian--if a dollar is spent on cash wages, mandatory social security contributions, or fringe benefits; to an employer, a dollar spent on labor costs is a dollar spent on labor costs, no matter the final destination of that dollar. Indeed, in the social democracies, 90% of social security tax burden falls on workers; in other words, for every dollar an employer is forced to contribute to social security programs, a worker's wage falls 90 cents. Thus--on paper--employers pay 100% of the employer contribution to social security, but in reality, employees pay for nearly all of those contributions because their wages would be higher if the employer's social security taxes did not exist. And in the United States, a similar phenomenon occurs with employer-sponsored health insurance: employees accept lower wages at jobs that offer health insurance. Clearly, looking at one form of labor costs (cash wages) while ignoring all the others makes no sense since the line between wages, benefits, and mandatory employer social security contributions is blurred, to say the least.

In sum, it makes no sense to point to the sticker price as being a complete accounting of the social welfare costs of a typical family; it ignores too many costs of the social welfare state and ignores several forms of labor costs.

Thus, the only way to fairly estimate the total cost of the welfare state is to sum every component of welfare spending and express it as a percentage of every dollar spent on labor costs--and so I've done this for both the American and social democratic columns (the blue percentages at the top of the first table). This is captured for the American side in the immediately preceding table (the social democratic side is covered below), which is a complete accounting of the cost of the welfare state to a median income American family. The left column is every dollar that this family's employers spend on them: this includes wages, benefits, and mandatory contributions to Social Security. On the right is every dollar that goes to taxes or social welfare: all taxes and social security contributions paid by both employer and employee on wages or labor, and all money spent on social welfare benefits paid by both employer and employee (discussed in greater detail below). Obviously, some items are in both columns--for example, employer contributions to health insurance and employer contributions to Social Security are both labor costs to the employer and are social welfare costs. This table is the total cost of the welfare state for this median-income individual family: all taxes, social security contributions, and spending on private social welfare benefits as a percentage of every dollar an employer must spend to employ this family.

Here is a table of the cost of other common social welfare benefits and services, alongside their out-of-pocket cost in the American social welfare system--in dollars, as a percentage of income for a median income family, and as a percentage of gross labor costs for a median income family:

There is a range for child care because the cost of high quality child care services varies wildly by state. In nearly all states, however, annual child care costs exceed the cost of tuition at a public university.

The above three tables is this blog post. Before proceeding, please return to the three above tables. Clearly, the American social welfare system is a phenomenally bad deal for a typical family compared to the social democratic model.

Here's the outline for the rest of this post:

1. As bad as the American side looks in these tables, it's actually worse than these basic numbers suggest. This is because the American side forces individual households to bear enormous risks in health care, retirement, and long term care. Also, the social welfare services available to a median income American family are of far lower quality than those same social welfare services available to a median income family in the social democracies. If we only look at the raw numbers, we lose sight of enormous financial risk and poor service quality of the American social welfare system.
2. The research or calculations behind each cell of all three of the above tables.

The horrors of the American long term care system
Long term care refers to health care equipment or services for patients who are grievously injured or very, very sick. These patients will never get better; they will be sick or badly injured until they die, and they will likely die from their injury or illness.

Numbers mislead when comparing the tax systems of the United States with the social democracies

This is part 2 of a two-part series on comparing the tax systems of the social democracies with that of the United States. I was motivated to write on this topic because it has become very fashionable for conservatives to point out that the social democracies tax regressively in order to "debunk" American fans of social democracy--since people who support social democracy tend to also support progressive taxation. Critics use the supposed regressivity of the tax systems in the social democracies to argue that progressive taxation and social democracy are incompatible.

This is wrong for two reasons, and that was the focus of the first post. First, the social democratic system is for the most part very progressive; the confusion stems from the fact that most experts on the American tax system assume that the social democratic system is basically the same as the American social welfare system, only more generous. But that's not true--the social democratic system is a different system entirely.

Second, the social democratic tax system actually is regressive for the richest 1%, who pay a lower tax rate than most of the poorest 99%. Many conservatives would like the conclusion to be that raising taxes on the richest 1% is therefore incompatible with social democracy. However, the richest 1% of the social democracies accounts for under 10% of national income, whereas the richest 1% in the United States accounts for nearly a quarter of national income. If the richest 1% has lower tax rates in the social democracies than the poorest 99%, the welfare state can still be funded because the richest 1% accounts for under 10% of all national income. But in the Untied States, a robust welfare state could not be funded without taxing the richest 1% higher than the social democracies do; they simply control too much of the national income.

I picked on Kyle Pomerleau of the Tax Policy blog not because he was a particularly ill-informed example, but because he was a particularly competent example. Most analysis of the differences of tax systems in the social democracies is so hopelessly muddled that there's nothing to criticize; it's simply all wrong. Pomerleau got a lot of the technical details correct about the social democratic tax system, so lets turn now to that topic.

Income taxes
To begin, Pomerleau notes that taxes and marginal tax rates are higher in the social democracies. True. And the highest tax rates kick in at much lower income levels:

However, the rates are not necessarily the most important feature of the Scandinavian income tax systems. In fact, the United States’ top marginal income tax rate is higher than Norway’s and only 18 percent lower than Sweden’s, yet raises 40 percent less income and payroll tax revenue than Norway and 50 percent less than Sweden.

The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark. From the American perspective, this means that all income over $60,000 (1.2 times the average income of about $50,000 in the United States) would be taxed at 60 percent...Sweden’s top marginal tax rate of 56.9 percent applies to all income over 1.5 times the average income in Sweden. Norway’s top marginal tax rate of 39 percent applies to all income over 1.6 times the average Norwegian income.

Compare this to The United States. The top marginal tax rate of 46.8 percent (state average and federal combined rates) kicks in at 8.5 times the average U.S. income (around $400,000). Comparatively, few taxpayers in the United States face the top marginal rate.

That last paragraph needs a little more perspective. There is almost no one in the United States who pays the top marginal tax rate. Pomerleau notes that the top rate starts around $400,000. The poorest members of the richest 1% don't even make that much:

The average household income of the 1% was $1.2m in 2008, according to federal tax data. The ultra-rich skew that average upwards: admission to the 1% began at $380,000 in 2008.

And furthermore, much of the richest 1% mostly pays capital gains taxes, which are taxed at a much lower rate; the highest tax rate on capital gains is just 20% (and 15% prior to 2013). The richest 1% pay about 20% of their income in taxes, suggesting that income for this group overwhelmingly comes from capital gains. Famously, this means that Warren Buffet's secretary pays a higher tax rate than he does.

It's misleading in the extreme to talk about income taxes in isolation from capital gains taxes--especially if you want to talk about progressivity of tax systems, as Pomerleau clearly does. You can't talk about the supposed progressivity of the American tax system based on income tax rates when the wealthiest Americans don't pay income taxes, instead paying lower (20%) capital gains tax rates. We'll take up the issue of capital gains taxes below.

Comparing median household income in the United States versus the social democracies

Image: Median income and median per capita income of the United States vs. the social democracies (source)


As this graph clearly shows, median household income (blue bars) is pretty similar between the United States and the social democracies. I'm using Gallup World Poll data, and as the authors point out, these data correlate tightly to aggregate wage data. This is a good validation of their results. Per capita household income (orange bars) is simply each household's income divided by the number of people in that household.

Some technical notes:

Just how regressive are the tax systems in the social democracies?

Image: George Stephanopoulos says Bernie Sanders "wants the United States to look more like Scandinavian countries," which may mean that Stephanopoulos believes Sanders has a plan to move the Norwegian fjords to America. (source)



A follow-up post (update: here) will consider how the tax systems of the social democracies differs from the tax system of the United States. Here, I'm going to focus exclusively on the question whether the tax systems of the social democracies are progressive or regressive.

This is a very important question because it's very fashionable among conservatives to argue that because the social democracies tax regressively, progressive taxation is incompatible with social democracy.

But the social democracies do not tax regressively, and it only appears that way because would-be tax policy analysts assume too many similarities between the American and social democratic models for tax and social welfare. Many Americans--experts included--assume that the social democratic model is the same as the American model, just more generous. That is flatly false: the social democratic model for taxation and social welfare is not a more generous American model--it's a different model entirely. Superficial similarities betray experts of the American tax system into making very basic mistakes.

Kyle Pomerleau at the Tax Policy Blog is typical in this regard. I could cite examples all day (here and here, for instance) of professionals making a mess of analyzing the tax systems of the social democracies. I myself have fallen into some these traps before. So don't think that Pomerleau has created some uniquely bad analysis. To the contrary, I'm picking on him because he's assembled a uniquely competent analysis. Most American tax policy wonks who try to characterizing the tax systems of the social democracies make such a mess that it's impossible to criticize what they've written; it's simply all wrong. I can use Pomerleau's post as an example because he manages to get enough things correct that I can fill in missing information. Most other examples are so hopelessly muddled as to be beyond repair. Pomerleau gets the raw numbers right, but fails to understand how the tax systems of the social democracies work.

Here is his very suspect summary statement of the tax systems of the social democracies (emphasis added):

In a recent interview on ABC’s This Week, Presidential hopeful Bernie Sanders reiterated his position that he wants the United States to look more like Scandinavian countries policy-wise:

George Stephanopoulos: “I can hear the Republican attack ad right now: ‘He wants America to look more like Scandinavia.’”

Bernie Sanders: “What’s wrong with that?”

Specifically, Sanders wants the United States to adopt a lot of the spending policies that many of the Scandinavian countries (Denmark, Norway, Sweden) are commonly known to have. Policies such as government sponsored college education, paid parental leave, and universal healthcare.

Many of these new government programs would be expensive and necessitate higher taxes. It is instructive to look at how Scandinavian countries structure their tax systems in order to raise revenue for these programs. Interestingly, some of the ways that Scandinavian countries raise revenue may make Sanders, who is a proponent of highly progressive taxation, uncomfortable.

Just how regressive are taxes in the social democracies?
In the above blockquote, I bolded two misleading statements. The first one is very tangential and Pomerleau shouldn't be faulted because he's a tax guy and not a social policy guy. He wrote, "Many of these new government programs would be expensive and necessitate higher taxes." I've spilled much ink on how the American social welfare system is just as expensive as the social democratic model. Aggregate (private plus public) spending on social welfare is basically the same in the United States as the social democracies. It's not a difference in overall cost; it's a difference in how programs are administered and financed. It's a difference of program efficiency and how well the true cost of each system is concealed with out-of-pocket private spending.

The second statement is more problematic:

Interestingly, some of the ways that Scandinavian countries raise revenue may make Sanders, who is a proponent of highly progressive taxation, uncomfortable.

Pomerleau later calls the tax systems of the social democracies "actually rather flat." That's wrong--but before we can continue, we have to be a little bit more specific of what we mean by tax progressivity.

As I pointed out with inequality measures (specifically the Gini coefficient) and gender discrimination, when studying things that affect all society, there can be no single measure that accounts for everything. In particular, the Gini sometimes gives nonsense conclusions, simply because it quixotically attempts to characterize an entire income distribution. Tax progressivity measures are the same: they also attempt to measure an entire income distribution are thus also create nonsense conclusions.

If the rich pay the highest tax rate but the poor pay a higher rate than the middle class, is this a progressive tax system? Or would it be better to say that some parts of the tax system are progressive and some parts of the tax system are regressive? Clearly--as with inequality--we need to look at multiple measures; a single measure will not suffice. We can never say that one tax system is more progressive than another. We are limited to claiming only that certain aspects of one tax system are more progressive or regressive.

Revisiting aggregate social welfare spending of the United States and the social democracies

Here, I revisit a previous post, or specifically, this graph by the OECD:

This graph shows the total (public + private) social welfare spending of OECD countries as a percentage of GDP. The take-home is clear: the United States does not actually have a less expensive social welfare system than the social democracies. Once we account for private spending on social welfare, it is clear that the American social welfare system costs just as much as the social democratic model.

Two things prompted me to return to this graph. First, the OECD updated the web page the graph was on (my original post linked to the page in 2014), and the graph is no longer at that link. Thus, it is no longer clear where the data from the graph comes from. Second, I didn't initially realize how important this graph is. This graph deserves its own post.

The page where I got the above graph is actually the home of OECD's social expenditure (SOCX) dataset. SOCX compares national expenditures on social welfare and--according to this dataset--the social democracies spend about 30% of GDP on social welfare, the United States about 20%. This only includes spending on government benefits.

However, in 2011, a team of OECD researchers realized that these data were extremely misleading and detailed their findings in a working paper, Is the European Welfare State Really More Expensive? (Adema, Fron & Ladaique). I'll focus on their findings for the United States and the social democracies since this is my primary concern on this blog. There was also a 2014 update, which we'll take a look at after reviewing SOCX methodology and the refinements of Adema, Fron & Ladaique.

First, the SOCX dataset greatly overestimates the the social spending in the social democracies. The biggest issue is cash benefits. In the United States, cash benefits (like Social Security payments) are not subject to income taxes. But that's not so in the social democracies, and the result is that a huge amount of social welfare benefits are actually returned to the welfare system through income taxes. Adema, Fron & Ladaique refer to this as "claw-back." Clearly, it makes no sense to count every dollar in social welfare benefits as a social expenditure, since much of those benefits will be taxed and thus returned to the welfare state. In Denmark, the amount of public social welfare benefits that are returned to the welfare state by direct taxation amounts to a whopping 4% of GDP. Clearly, SOCX is wrong to disregard this.

Comparing new parent social welfare benefits of the United States vs the social democracies

Courtney Jung points out the hypocrisy of American social welfare benefits for new mothers (emphasis added):

In 2010, the Fair Labor Standards Act was amended to require employers to "provide reasonable break time" and space for women to pump breast milk at work. To be clear, those breaks are unpaid, and the Department of Health and Human Services encourages employers to have mothers come in early or stay late to make up the time they spend pumping. Since 2013, the Affordable Care Act has required insurance companies to cover the cost of a breast pump for new mothers.

Such policies have quietly realigned our expectations of what new mothers should do to care for their newborns, making mothers work harder, for less pay, under conditions that risk compromising their dignity and professionalism.

They are also explicitly conceived as business-friendly strategies that enable women to comply with the injunction to breastfeed at no cost to employers. Who needs a lavish European-style maternity leave when we've got breast pumps?

Actually, free markets aren't efficient in theory, either

Image: If we don't get the biggest pie, then what's the point? (source)




The fundamental assumption of free market capitalism is that the free market can provide goods more efficiently than the government, or any other system. If the government interferes in the free market--even with the best of intentions--it will only make things worse. Rent controls cause a housing shortage; price controls cause oversupplies; minimum wage laws increase unemployment. The further we get away from a pure free market, the worse the inefficiencies and unintended consequences. It may be necessary to assist the less fortunate sometimes, but government should interfere as little as possible in order to avoid making things worse. Interference will certainly do harm; it could easily do more harm than good.

A more technical way of expressing this free-market-is-always-best ethos is to say that the free market will naturally reach an efficient equilibrium. An equilibrium of prices will ensure efficient allocation goods to all members of society. It may not be the most socially just distribution, but it will certainly be the most efficient distribution that can possibly be attained. Making the distribution more just--that is, making each person's slice of the pie closer to equal--will result in less pie overall. We can have a full pie with very unequal pieces; we can have a smaller pie with less unequal pieces; but we can't have a full pie with less unequal pieces. In other words, there is a trade-off between equity (or fairness) and efficiency. Increasing equity necessarily results in less efficiency.

Pushed to its limits, this idea is actually a liberating, social justice imperative. With a free market ensuring the most efficient outcome, the pie becomes so big that even with very inequitable slices, the poor are still better off. Even with a very unequally-cut pie, free market capitalism creates such an enormous pie that even the poor have a bigger slice than they could ever hope for in any other pie, no matter how egalitarian the slices are cut. Sure, a market might produce winners and losers, but when the pie is big enough, even the losers are better off.

This idea--that government programs which increase equity are necessary less efficient--underpins bipartisan social policy adventures such as school choice vouchers and privatizing social security. The idea is that--because markets are so efficient--any (real or otherwise) problems with anything can be improved by making them function more like free markets.

Obviously, if the equity-efficiency trade-off exists, we are essentially arguing over values. I may prioritize equity over efficiency while someone else may prioritize efficiency over equity, and there is no right answer, per se. But that the equity-efficiency trade-off exists is utterly fundamental to free market capitalism. Without that trade-off, free market capitalism makes no sense. If free market capitalism doesn't produce the biggest pie, then what's the point? If free market capitalism can't produce the biggest pie, why should we tolerate the incredible inequities it creates?

George Orwell and Karl Marx don't want your iPhone: communism, capital, and private possessions

Image: Street art inspired by George Orwell's Animal Farm (source)



Animal Farm
The novel Animal Farm by George Orwell is remembered as a cautionary tale against the inevitable problems of leftism. In Animal Farm, the farm animals--led by the pigs Snowball and Napoleon--rebel against their drunk and incompetent farmer, eventually prevailing and setting up a farm where all the animals are better off. The animals all learn to read and write, and plans are in the works for all the animals' stalls to have electricity and running water. In order to realize these admirable goals, the animals agree to give up all their possessions so they can be used to benefit the entire farm, and the animals all work hard to contribute to the common good. But Napoleon is able to drive away Snowball, and rather than continuing with the egalitarian projects, Napoleon starts using the community's wealth to improve the condition of the pigs. As a result, the quality of life of the rest of the animals declines until they are far worse off than before the revolution, and--unbeknownst to the animals other than the pigs--some of the animals are even assassinated in order to improve the power and wealth of the pigs. The pigs eventually obtain so many special privileges at the expense of the other animals that they become indistinguishable from the oppressive farmers, and the golden rule of the revolution: "All animals are equal" becomes "All animals are equal, but some animals are more equal than others."

It is impossible to argue that the scenario in Animal Farm isn't more or less what happened in the Soviet Union, Cuba, and Ethiopia. In the name of the common good, a privileged few were able to exploit the rest of society. And this scenario was certainly played out to a horrific level in Cambodia. Yet Orwell could not possibly have intended his work to be a cautionary against leftism generally. Ironically, Orwell considered himself a socialist--and not one of those Scandinavian social democrats who call themselves socialists but actually seek to create a more humane form of capitalism--Orwell was a true socialist who believed that private ownership of capital should be abolished. He traveled to Spain to fight alongside the socialists in the Spanish Civil War, where he was wounded, nearly fatally.

The book's resemblance to the actual history of Soviet-style communism is no coincidence. Orwell wrote Animal Farm as a critique of Soviet-style communism generally and Joseph Stalin in particular. Ironically--given the way the novel is remembered today--Orwell felt compelled to write Animal Farm to counteract the fact that Joseph Stalin was held in very high regard in capitalist Great Britain in the early- to mid-1940's. Orwell believed that Stalinism should be spurned due to its Reign of Terror and dictatorship, even if the Soviet Union was an ally against the Nazis.

Many often assume that communism necessarily demands an Animal Farm-style collectivization of wealth, and the inevitable seizing of society's wealth by the powerful--as if that's even different from our capitalist world where 1% of people own half of all world wealth and half the world lives in abject deprivation, or the United States where the richest 1% controls over a third of all wealth, the richest 10% control over three quarters of all wealth, and the richest 0.1% are about as wealthy as the poorest 90%. Yet Orwell is not alone on the left in his views on collectivization. Karl Marx himself was careful to make the distinction between productive capital and personal possessions, since personal possessions cannot be used to exploit people, but capital can. Your house, mementos from a deceased loved one, family heirlooms, books, pets, smartphone, etc--all of these things are not capital because they cannot be used to exploit people. I'm with Karl and George on this one. If your iPhone makes you happy, keep it, because you can't use it to exploit people.

Comparing the quality of child care services of Finland and the United States

I've spilled much ink on how social democracy is a far more efficient welfare system than one that relies on the private market. Again, when aggregate (private plus public) welfare spending is about the same in the United States as the social democracies, it's clear that social democracy is a far more efficient use of resources.

But this perspective overlooks how much better social democratic welfare services are compared to private market services in the United States. Here, I highlight child care in Finland as an example, but the same analysis could be repeated for nursing homes or other areas of social welfare.

By law, all Finnish children have a right to child care services their family can afford, but even the wealthiest parents are only charged a couple hundred dollars per month. Sara Mead describes the high quality of these services:

Publicly funded kindergartens and preschool in Finland are of quite high-quality, with quality standards roughly on par with those universal pre-k advocates seek for publicly funded pre-k programs in the United States. Kindergartens must have at least one adult for every seven children over age three, for every four children under age three, or for every two one-year-olds (infants under age one are rarely enrolled in kindergartens because Finland offers generous parental leave supports for parents in their child’s first year of life).

To ensure high quality care, there are strict credentialing standards for workers:

One out of every three adults working in kindergartens holds a bachelor’s degree as a certified kindergarten teacher (in effect, the lead teacher in each classroom). The other two adults must hold credentials as “licensed practical nurses,” a vocational degree that is roughly equivalent to a high school diploma with specialized education and training to work with young children.

Finnish child care centers must strictly adhere to a set cirriculum, which also helps to ensure high quality care:

Kindergartens must adhere to the National Curriculum Guidelines for Early Childhood Education and Care in Finland—comprehensive standards for child care environments and activities that address the developmental needs of the whole child—and with more detailed early childhood plans that each municipality must create to implement the national curriculum guidelines. These guidelines are aligned with the National Core Curriculum for Preschool Education in Finland, which is in turn aligned with the National Core Curriculum for Basic Education. These class size, teacher qualifications, and curriculum standards make the programs offered by Finnish kindergartens higher in quality than those offered by many state pre-k programs and Head Start centers in the United States.

Compare this to the American child care system (emphasis added):

In Texas, a person only needs a high school qualification or equivalent to operate a home day care. (That includes online degrees.)...Caregivers are also required to attend a state-sanctioned education session. According to a trainer, Tata had wandered in and out of the classroom, put her head down on the table, and spent much of the time texting. But since the law only requires applicants to show up, Tata had satisfied the requirement.

By national standards, Texas child care regulations are typical—better than average in some respects, worse in others. That is to say, they are painfully minimal. “You know, when we walk into some of these places, they’re meeting the letter of the standards,” Lahmeyer says. “But it’s like a warehouse for children. You know it when, as the inspector, you are the most interesting thing the kids have seen all day. They attach themselves to you and are trying to engage because there’s nothing else going on for them.”

Like most states, Texas inspects child care centers at least once a year, but only has the manpower to visit home day cares every two. Even egregious violations don’t always lead to shutdowns. Sometimes, that’s because parents, lacking alternatives, fight to keep notorious places open. An inspector named Carol McGinnis told me she’d recently visited a center in “total disarray,” with “feces smeared on the walls.” Nevertheless, if the agency closed it, McGinnis expected some parents would resist, because it was one of the few places offering care on weekends.

On other occasions, the process of closing a day care can be torturous. Lahmeyer recalled one place that racked up repeated violations over two years before a judge would shut it down. “I can tell you there’s a fair number [of cases] that we lost because the judge decided, No child’s died yet, so they stay open,” Lahmeyer says...I asked McGinnis how many of the area’s providers she’d trust with her own child. She answered promptly: “Twenty percent.”

"Neutrality" in statistics: comparing the Palma inequality ratios of the United States with the social democracies

Image: Palma ratios--a measure of inequality--of selected countries (ordered by Palma v.3, source)


As the graph at the top of the page shows, the social democracies (marked with red squares) have lower inequality as measured by Palma ratios compared to the liberal countries, including the United States (marked with blue squares). My goal here is to argue that the social democracies really are better and limiting inequality, and since the Palma ratio is rarely used and the Gini coefficient has become the standard measure of inequality, the rest of this post is about why the Palma ratio is a better measure of inequality than the Gini.

I wrote previously about Gini coefficients and Palma ratios as measures of inequality. At that time, I noticed a nonsense conclusion someone had made: based on the fact that the pre-tax pre-transfer Gini coefficients of the United States and the social democracies are approximately equal, this writer had concluded that taxes and transfers were the only reason why the social democracies had less inequality than the United States.

Even at a glance, this simply cannot be correct. McDonald's workers in Denmark, for example, make three times the hourly wage of McDonald's workers in the United States. There's simply no way that pre-tax pre-transfer inequality can possibly be similar. Indeed--as I pointed out then--the richest 1% in the United States take home 18% of all pre-tax income, but the richest 1% in Denmark take home just 4%. Clearly, the Gini coefficients are wrong; pre-tax, pre-transfer inequality is not similar between the United States and Denmark.

This matters greatly from a social policy perspective. Taxes and transfers may indeed be effective policies for limiting inequality, but they're not the only effective policies. As I pointed out at the time, full employment is probably a more powerful tool against inequality than taxes and transfers, and I argued that inequality was too complex to capture with a single number, though the Palma ratio was probably the best option for a single measure of inequality.

Alex Cobham and Andy Sumner penned a review of the evidence against the Gini coefficient and in support of the Palma ratio. Before diving into their review, some background on inequality measures is necessary.

The Lorenz curve is simply a graph of the distribution of the wealth of a country. As you can see, perfect inequality would yeild a straight line, whereas any inequality bends the line downwards:

Greater inequality will result in a line that deviates further from the perfectly straight line running diagonally across the graph, but the Lorenz curve can also visually illustrate where inequality occurs. For example, take these hypothetical Lorenz curves:

We can see that inequality in the country represented by the green line is primarily due to the poor being very poor. The green line deviates most from the straight diagonal at the bottom of the income distribution; since the line rises so little for the first 30% of the population, it's clear that the bottom 30% are very poor relative to the standards of this country. And since the line is relatively straight after 30%, the richest 70% are fairly income equal to each other; inequality is thus caused by deprivation of the poorest 30%.

The red line, however, is nearly straight for the first 85% of the population. Since this line is so straight, it indicates that the bottom 85% are pretty equal in their share of national income. The abrupt turn upwards of the red line indicates that the richest 15% are far richer than the poorest 85%.

Finally, the country represented by the blue curve--because it does not bend as far away from the straight diagonal--has less inequality than the countries represented by the green and red lines.

As this hypothetical example shows, comparing Lorenz curves can be very valuable as Lorenz curves visually display both the magnitude of inequality and well as the points in the income distribution where inequality occurs.

Cobham and Sumner explain the limitations of the Gini coefficient:

Atkinson (1973) demonstrates just why this matters, and how it ensures that the Gini is far from a ‘neutral’ measure of inequality. He first highlights that, in comparing two countries where the Lorenz curves do not intersect, we can say--and the Gini will suffice to do so--that the country with the curve closer to the line of complete equality is more equal than the other. When Lorenz curves cross, however, things become less clear.

Atkinson presents the case of the United Kingdom and West Germany, for which the Lorenz curves then crossed at around 50% of the population. The income share of the lowest-income 50% is higher (closer to the 45-degree line) in West Germany, while that of the highest-income 50% is closer to the line in the UK--but the Gini coefficient shows the UK to be less unequal. Atkinson concludes:

Summary measures such as the Gini coefficient are often presented as purely 'scientific', but in fact they explicitly embody values about a desirable distribution of income (p.66).

Falling through the cracks of the American welfare system

Image: On this map, the darkened counties in Mississippi are some of the poorest counties in the entire United States. These counties were not served by Obamacare health insurance subsidies. (source)



A look back at three of the worst examples I have ever encountered of neoliberal welfare programs letting eligible individuals fall through the cracks.

First, a 2013 warning about Obamacare in Mississippi (emphasis added):

No insurer is offering to sell plans through the federal health law’s marketplaces in 36 of the state’s 82 counties, including some of the poorest parts of the Delta region, said Mississippi Insurance Commissioner Mike Chaney.

As a result, 54,000 people who may qualify for subsidized coverage would be unable to get it, estimates the Center for Mississippi Health Policy, a nonpartisan research group.

Many make a living picking soybeans, working on tree farms or in fast food restaurants, earning too little to buy coverage on their own.

“That’s the place where it’s most needed,” said Roy Mitchell, executive director of the Mississippi Health Advocacy Program. “There’s a high uninsured population there. One of the highest infant mortality rates in the country is in that area.["]

Second, a 2001 study of the Child Care and Development Fund--a program that is supposed to pay for child care for young children so their parents can go to work (emphasis in original):

Based on recently released and revised data from the U.S. Department of Health and Human Services (HHS), CLASP estimates that states served about 14 percent of federally-eligible children (approximately 1 out of 7) in FY 2000.

You did not misread that: CCDF was so poorly funded that 86% of eligible children did not receive benefits.