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Category: public policy

Published on Leave a comment on Andrew Stern Goes 1 for 2

In an earlier post, I wrote:

My ideal union is one that helps the workers communicate their grievances and suggestions to management and shareholders and, more importantly, helps the workers invest in more skills to boost their productivity, whether at their current jobs or their next ones.

That wasn't meant to exclude other good ideas. Writing at the Huffington Post, SEIU President Andrew Stern calls attention to efforts his union (one of those breaking away from the AFL-CIO in the earlier post) has been making to help improve the luxury condo market in South Florida.

Condo workers are finding out that they have a lot in common with condo residents who also get taken for a ride by property management companies like Continental. Fees keep going up, and Continental's parent company makes money by "cross-selling" additional services such as painting, landscaping, and pool cleaning.

Elected public officials, condo residents, and condo workers have been holding public forums and pushing for legislation requiring licensing, fiscal and ethical standards, and full disclosure of contracting relationships.

That’s the new union movement. Giving a voice to the voiceless. Uniting with community groups for everyone’s benefit. And making sure that working people have the tools and training they need to provide a service they can be proud of.

Serving as monitors on behalf of owners against allegedly corrupt practices by management companies is another economically valuable role for unions to play. It would allow the members to earn the above-market wages they would like to be paid. Good for them.

In other union news, Alan Murray writes in the Wall Street Journal that today:

[A]t 34 news conferences in 24 states across the U.S., a group called Wake-Up Wal-Mart will paint Sam Walton's company in black. The group -- started by the United Food and Commercial Workers International Union, and backed by teachers' unions -- will call for a Back-to-School boycott of Wal-Mart stores, charging the Bentonville, Ark., company with paying poverty-level wages, providing skimpy benefits and flouting labor and discrimination laws. (Never mind the fact that it sells a large box of crayons for 25 cents.)

Boycotts that don't involve coercion, libel, or slander are fine in my book. I don't think it will work, but there's nothing wrong with assembling for that purpose. Later in the article, we read:

To run the new effort, the UFCW hired a refugee from Howard Dean's political campaign, Paul Blank, who operates out of cramped offices on Washington's K Street, where the walls are covered with maps and hand-drawn anti-Wal-Mart signs. Meantime, the Service Employees International Union, another break-off union, has established a rival site, Wal-Martwatch, with support from liberal groups including the Sierra Club and Common Cause. "We have no intention of trying to organize Wal-Mart workers," says SEIU President Andrew Stern. "The purpose is to change Wal-Mart's business model -- a business model that rewards shareholders and executives and doesn't reward workers."

Economics ... professor ... meltdown. Wal-Mart's business model is to squeeze every last piece of inefficiency out of the retail supply and distribution chain. That includes not paying its workers (at all levels) any more than what is necessary to get them to perform their jobs at Wal-Mart rather than their next best opportunity. It is amazingly successful, and it does creates enormous value for Wal-Mart's customers and its shareholders, which the latter (presumably happily) share with the executives who oversee that process and all other workers who contribute to it. That's the workers' reward. As long as Wal-Mart operates within the law and without coercion, this is how the retailing business is supposed to work.

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Published on Leave a comment on Happy Independence Day

I agree with Tom Brokaw that, based on the contributions of ordinary people to an extraordinary event, the WWII generation deserves his honorific The Greatest Generation. Judged on the basis of the vision of the leaders, the honorific belongs to the Founders, and this is a day to remember them. To wit, the second paragraph of the Declaration of Independence:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to
throw off such Government, and to provide new Guards for their future security.--Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

They were right--on every assertion they made.

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Published on Leave a comment on Are You Powerless to Fight?

This was the question posed by a commenter on my last post. He or she makes some suggestions for what I could do, and so I figured I would post them and provide some further comments.

1. You could contribute to moderate Republicans who would increase taxes (I don't believe in such a thing, but you apparently do).

Yes, this is true, but how would an anonymous commenter on the blog know which candidates I contribute to and which ones I don't? In general, I don't give money to politicians, but neither do I hang up the phone when they or their staffs occasionally call. I would lend support to any elected official, of any party, who set a more ambitious deficit reduction target than cutting the unified budget deficit in half by 2009. We are in the healthy part of a cyclical recovery--the on-budget deficit (i.e. excluding the level and growth of the Social Security surplus) should be in surplus. To get back into surplus, I believe that we should take as much as we can out of spending (including the General Fund's contribution to Medicare and the part of the Defense budget that represents corporate welfare) before raising taxes. But if the spending cuts are inadequate, broad-based taxes should go up to get the budget in balance over the business cycle.

2. You could organize Republican economists for sanity who could propose increasing taxes.

I suppose this is another possibility, but I don't have the time. Between teaching and research and other administrative responsibilities, I barely have time to blog these days. But if there is a coalition forming on the center-right around fiscal restraint on spending, I would be happy to lend my voice. I certainly don't support making the remaining 2001 and 2003 tax cuts permanent before the budget is brought into balance (which, in the current environment, means that I don't support making them permanent).

3. You could testify before Congress in opposition to this administration's tax policies.

History suggests that my testifying is bad for the President. I was asked to testify twice before. The first occasion coincided with the delivery of the Starr Report. The second occasion coincided with the impeachment hearings. I don't think I had the Senators' full attention either time. But more importantly, one has to be asked to testify, and no one has been asking. I would go if asked.

4. You could write an op-ed supporting higher taxes and restoring a more progressive tax structure.

I've had virtually no success in getting op-eds published over the years. (Here is an exception that I like.) Part of the reason I started blogging was because I think that a well done blog, or even an insightful post, is going to be almost as good and with much lower hassle. I think that I have been mindful of budget balance and progressivity on this blog. See this Econoblog in the Wall Street Journal, this post on how I would reform Social Security, and this post on how I would change the tax treatment of health insurance premiums.

I appreciate the comments, even those that begin with "Hack!" The irony of this exchange, to me at least, is that the last post expressed disappointment that, for no good reason, the baseline budget got $300 billion worse over 10 years due to legislation passed since last September.

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Published on Leave a comment on Farm Subsidies

Reading the New York Times this morning, I found myself immersed in this article, "Big Farms Reap Two Harvests With Subsidies a Bumper Crop." The main topic in the article is well expressed in this paragraph:

For despite the fact that farm income has doubled in two years, federal subsidies have also gone up nearly 40 percent over the same period - projected at $15.7 billion this year, and $130 billion over the last nine years. And that bounty is drawing fire from people who say that at this moment of farm prosperity, the nation's subsidy system has never made less sense.

Yes, farm subsidies. How could I have blogged this long without going crazy about farm subsidies? I don't see any economic rationale for them, and the statements above (and supporting information in the article) suggest that they fail in their main purpose of providing the most income in the years when farm income is lowest. (It seems like they focus too much on price and not enough on price x quantity, as a first pass.) Certainly the obligatory "get the farmers' point of view" quotes in the article are not very reassuring:

Farm groups say the subsidies provide for a stable food supply, and ensure that major sectors of American agriculture will be competitive on the global market.

"When people ask me what the justification for this is, I point out that in nearly every country in the world you find government involved in the food supply," said Bob Young, an economist at the American Farm Bureau Federation, the powerful trade group for major agricultural producers.

This is standard interest-group pandering. Eventually, all farm subsidies ought to go, but I don't know enough about agrarian America to know what that would do to families, livelihoods, and communities in the short run. I'm open to suggestion as to how these subsidies should be unwound and over what horizon that should happen.

The reporter (Timothy Egan) clearly has a view that the subsidy system is not adequately helping small and medium-sized farms. He even marshals bad statistics to support his case. Consider the next paragraph:

But because nearly 70 percent of the subsidies go to the top 10 percent of agricultural producers, the recent prosperity is not seen or felt among many small to medium-size growers who keep the struggling counties of the Great Plains alive.

We naturally would want to know how much of the production that top 10 percent accounts for. If it is about 70 percent, then we would figure that there is probably nothing perverse about the way the subsidies are being doled out. Several paragraphs later, we accidentally get this piece of information:

Farm production has doubled over the last 50 years, while the number of farms has fallen by two-thirds. Economists say about 150,000 of America's 2.1 million farms produce 70 percent of the major food crops. But only certain crops - wheat, corn, cotton, soybeans and sunflowers among them - qualify for subsidies.

So if we have 2.1 million farms, the top 10 percent would be 210,000. But it only takes 150,000 of them to get to the 70 percent of production (assuming these "major food crops" are analogous to the "agricultural producers" above). So this means that even though the top 10 percent produce more than 70 percent of the crops, they only get 70 percent of the subsidies. I don't believe that the article provides any evidence that the subsidies are distributed in accord with anything other than total production. It may be true--but the article hasn't shown it.

Bad NYT. Go get some fact-checkers and a professional research staff. Help your reporters to do a better job.

But the last sentence of that paragraph is the one that surprised me. I guess I should have known this all along, but only a few crops get subsidies. And, in particular, a few paragraphs earlier in the story, we find:

The subsidies have also drawn criticism from farmers who grow fruits, vegetables and nuts - nearly half of American agriculture - but have nothing like the elaborate safety net in place for corn, cattle, wheat and hog producers.

We are a nation with rising obesity rates, and we decide to keep in place extensive subsidies for wheat, corn, beef, and bacon, but not for fruits and vegetables. Now this looks like a government program. It provides little insurance, seems to reward patronage rather than need, and appears to be at odds with sensible nutritional advice.

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Published on Leave a comment on Answering Some Comments

From the comments on my last post, I see that I should not quit my day job (or this one) to work as a consultant to the Democratic party. In all fairness, I should point out that others in the blogosphere with views generally dissimilar to mine have made similar points. See this post at the American Prospect online:

The Democrats' best option here, it seems to me, begins with what Kerrey and Rudman laid out. The Dems need to come up with an alternative to Bush's plan that can be framed as change and as solving the Social Security problems that they too have been yammering about for more than a decade.

Brad DeLong also makes some useful points about how things have changed to the point where he is out of the crisis mode (i.e., his view that the uptick in productivity since 1995 looks to be here to stay and this is not reflected in the Trustees' projections). However, I think these comments are incomplete. In particular, leading demographers think the Trustees' assumptions about longevity understate the decline in mortality and thus program costs. (See this paper for a recent example.) I discussed these issues in more detail in an earlier post.

So I still think we are in crisis mode, or, more precisely, that we are in "impending crisis" mode. If we do nothing, we hand a growing stream of annual Social Security shortfalls to future generations of workers with little policy flexibility to deal with them. I am trying to avoid that outcome. In the whole set of posts that I have done on Social Security, I haven't asked the Democrats to do anything that is more difficult than what I have asked the Republicans to do. I acknowledge that the problems facing Medicare are larger than those facing Social Security. That doesn't mean that we shouldn't solve Social Security's problems.

One comment asked that I find an example of a policy that the Bush administration has implemented that it has not messed up. In the realm of economic policy:

  1. I was extremely disappointed to see the Medicare prescription drug benefit add an enormous unfunded obligation when we already face long-term shortfalls in our old-age entitlement programs.
  2. Looking forward, the persistent deficits in the budget forecast, even with above-potential economic growth and no particular fiscal challenges, are deeply worrying. The "cut the budget deficit in half in 5 years" approach is far too timid for my tastes.
  3. Looking backward, I think the tax cut packages in 2001 and 2003 were appropriately timed and of the appropriate magnitude. They averted what could have been a much deeper reduction in output. But they have clearly set us up for #2.
  4. The bright spot for me is international trade. With a few highly visible exceptions, the Administration has generally worked to lower trade barriers. This has occurred despite the stalled WTO, particularly through free-trade agreements in our hemisphere. I give the USTR's office appropriate credit.

But most of this is neither here nor there. The critical issue with Social Security reform is to restore solvency. As I watch this policy process unfolding, I get very nervous when I hear personal accounts discussed without a discussion of restoring solvency. All sugar and no medicine would equal very bad policy.

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