This is an interesting article. A very brief overview of what might be driving thinking on the US Dollar.
Help me understand..
The Truth About Income Inequality – WSJ 11/4/2019
By Phil Gramm And John F. Early
Never in American history has the debate over income inequality so dominated the public square, with Democratic presidential candidates and congressional leaders calling for massive tax increases and federal expenditures to redistribute the nation’s income. Unfortunately, official measures of income inequality, the numbers being debated, are profoundly distorted by what the Census Bureau chooses to count as household income.
The published census data for 2017 portray the top quintile of households as having almost 17 times as much income as the bottom quintile. But this picture is false. The measure fails to account for the one-third of all household income paid in federal, state and local taxes. Since households in the top income quintile pay almost two-thirds of all taxes, ignoring the earned income lost to taxes substantially overstates inequality. The Census Bureau also fails to count $1.9 trillion in annual public transfer payments to American households. The bureau ignores transfer payments from some 95 federal programs such as Medicare, Medicaid and food stamps, which make up more than 40% of federal spending, along with dozens of state and local programs. Government transfers provide 89% of all resources available to the bottom income quintile of households and more than half of the total resources available to the second quintile.
In all, leaving out taxes and most transfers overstates inequality by more than 300%, as measured by the ratio of the top quintile’s income to the bottom quintile’s. More than 80% of all taxes are paid by the top two quintiles, and more than 70% of all government transfer payments go to the bottom two quintiles.
America’s system of data collection is among the most sophisticated in the world, but the Census Bureau’s decision not to count taxes as lost income and transfers as gained income grossly distorts its measure of the income distribution. As a result, the raging national debate over income inequality, the outcome of which could alter the foundations of our economic and political system, is based on faulty information.
The average bottom-quintile household earns only $4,908, while the average top-quintile one earns $295,904, or 60 times as much. But using official government data sources on taxes and all transfer payments to compute net income produces the more complete comparison displayed in the nearby chart.
The average bottom-quintile household receives $45,389 in government transfers. Private transfers from charitable and family sources provide another $3,313. The average household in the bottom quintile pays $2,709 in taxes, mostly sales, property and excise taxes. The net result is that the average household in the bottom quintile has $50,901 of available resources.
Government transfers go mostly to low-income households. The average bottom-quintile household and the average second-quintile household receive government transfers of some $17 and $4 respectively for every dollar of taxes they pay. The average middle-income household receives $17,850 in government transfers and pays an almost identical $17,737 in taxes, while the fourth and top quintiles of households receive government transfers of only 29 cents and 6 cents respectively for every dollar paid in taxes. (In the chart, transfers received minus taxes paid are shown as net government transfers for low-income households and net taxes
The census fails to account for taxes and most welfare payments, painting a distorted picture.
for high income households.) The average top-quintile household pays on average $109,125 in taxes and is left, after taxes and transfer payments, with only 3.8 times as much as the bottom quintile: $194,906 compared with $50,901. No matter how much income you think government in a free society should redistribute, it is much harder to argue that the bottom quintile is getting too little or the top quintile is getting too much when the ratio of net resources available to them is 3.8 to 1 rather than 60 to 1 (the ratio of what they earn) or the Census number of 17 to 1 (which excludes taxes and most transfers).
Today government redistributes sufficient resources to elevate the average household in the bottom quintile to a net income, after transfers and taxes, of $50,901—well within the range of American middle- class earnings. The average household in the second quintile is only slightly better off than the average bottom-quintile household. The average second-quintile household receives only 9.4% more, even though it earns more than six times as much income, it has more than twice the proportion of its prime working-age individuals employed, and they work twice as many hours a week on average. The average middle- income household is only 32% better off than the average bottom-quintile households despite earning more than 13 times as much, having 2.5 times as many of prime working-age individuals employed and working more than twice as many hours a week.
Antipoverty spending in the past 50 years has not only raised most of the households in the bottom quintile of earners into the middle class, but has also induced many low-income earners to stop working. In 1967, when funding for the War on Poverty started to flow, almost 70% of prime working-age adults in bottom- quintile households were employed. Over the next 50 years, that share fell to 36%. The second quintile, which historically had the highest labor-force participation rate among prime work-age adults, saw its labor-force participation rate fall from 90% to 85%, while the top three income quintiles all increased their work effort.
Any debate about further redistribution of income needs to be tethered to these facts. America already redistributes enough income to compress the income difference between the top and bottom quintiles from 60 to 1 in earned income down to 3.8 to 1 in income received. If 3.8 to 1 is too large an income differential, those who favor more redistribution need to explain to the bottom 60% of income-earning households why they should keep working when they could get almost as much from riding in the wagon as they get now from pulling it.
Mr. Gramm is a former chairman of the Senate Banking Committee. Mr. Early served twice as assistant commissioner at the Bureau of Labor Statistics.
Very interesting, indeed.
WSJ 11/24/2018 By Jason Willick
Since election night 2016, liberal pundits have debated whether Donald Trump won because of “economic anxiety” or “cultural resentment.” According to Oren Cass, “these aren’t different things.” The real issue, the Manhattan Institute scholar says, is work. Whether and how people are employed—what their role is in society’s productive system—“is both an economic and cultural question.”
Karl Marx speculated that workers with leisure time would “hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner.” He was wrong. People on disability insurance— especially men—are more likely to be “sleeping and watching TV” than hunting or fishing, Mr.
Cass says. Unemployment, more than any of life’s other rough patches, leads to unhappiness and family breakdown. People want to “know what our obligations are, and feel that we’re fulfilling them,” he adds. When this foundation of society starts to crumble, political upheaval tends to follow.
Those who pin Mr. Trump’s victory on “economic anxiety” often advocate directing more government spending to people the economy has left behind. But, says Mr.
Cass, the “further down the income ladder you go, generally speaking, the less enthusiasm there is for redistribution as a solution. People will tell you they want to work.”
He adds: “It’s when you get to the top of the income distribution that you find a whole lot of people are basically like, ‘Why can’t I just write a check?’ ” The most extreme version of this impulse is the idea of a universal basic income—a regular government outlay for every citizen, whether they are working or not.
Hillary Clinton’s 2016 campaign workshopped a version of the UBI, and California Sen. Kamala Harris has proposed an expansion of the earned-income tax credit that would have a similar effect. Mr.
Cass expects more policy proposals along these lines “once the bidding war among the 2020 Democrats heats up.” He says the UBI trend reflects an ideology that has gained traction in Silicon Valley and among the “technocratic elite” generally, which professes that “we can engineer away all our problems” without political choices that may be uncomfortable for the upper- middle class.
Mr. Cass, 35, has spent most of his life among that technocratic elite. He started as a junior consultant at Bain & Company out of Williams College. A few years later he took a six-month leave to work on Mitt Romney’s 2008 campaign for the Republican presidential nomination. Afterward, Mr. Cass enrolled in Harvard Law School to deepen his understanding of public policy.
“Law school is a lot of fun if you’re not there to be a lawyer,” he quips. He volunteered for the next Romney operation in 2011 between his second and third years at Harvard, and ended up with so much in his portfolio that at the end of the summer “they sort of said, well, you have to stay.” He became domestic- policy director while still in law school.
Returning to Bain after the election, Mr. Cass started writing on environmental and labor policy for National Review. His work caught the attention of the Manhattan Institute, which hired him as a senior fellow in 2015. His new book, “The Once and Future Worker,” grew out of responses to Mr. Trump’s 2016 victory.
Many public-policy experts, Mr. Cass said, saw the defeat of both party establishments as a marketing issue: “Maybe we haven’t done a good enough job explaining how great everything is.” Mr. Cass disagrees. Can working-class Americans “buy more cheap stuff? Absolutely. And do we now transfer more money to them, so they can buy even more cheap stuff? Yes,” he says. “But their ability to participate meaningfully in the labor market, and to become self-sufficient supporters of families has eroded badly.”
Mr. Cass believes the problems of wage stagnation and low labor-force participation “predate the slow growth” of the Obama years.
Since the 1970s, he argues, both parties have shifted away from prioritizing work and adopted a “grow and redistribute” economic model that leaves low-skilled Americans with fewer opportunities and incentives to secure well-paid jobs.
And no, it isn’t because all the jobs are becoming automated. “In almost all cases, technology is a complement” to work, not a substitute— in fact, it increases workers’ value. Cases like toll collectors, where machines obviate the need for a human worker, “turn out to be really hard to come up with.” Moreover, new technologies may take decades to be adopted widely.
Computers were first developed in the 1940s, he notes, and yet “we’re just now figuring out how to actually deploy them effectively in, like, your local HR organization.”
Nor is the decline of less-skilled work a result of the “knowledge economy” and “service economy” crowding out demand for physical goods. “We can see what the richest Americans consume,” Mr. Cass says, “and that marginal income doesn’t go to digital downloads and yoga lessons.” Or at least, it “also goes to bigger houses and bigger cars, and more furniture, and more clothes, and more electronic devices.” As society gets wealthier, there will still be demand for physical things. In health care, for example, there has been a well-publicized growth in services, Mr. Cass says, “but there’s also a tremendous amount in complex devices, in new and more complex drugs that are more difficult to manufacture.”
Mr. Cass thinks the idea that immutable forces are hollowing out the labor market is meant in part to “absolve the economists and policy makers of any blame” for reducing the viability of less-skilled work. Take environmental policy. “The trade-off that you would strike between environmental quality and industrial activity, if you’re earning $200K in an office,” Mr. Cass says, “is very, very different from the balance that you would strike if you were earning $35K, and trying to make ends meet in the industrial economy.” Environmental Protection Agency regulations have grown so tight “that Brussels, the capital of the EU, would be the single dirtiest city in the U.S., if it were here,” he says.
Draconian environmental policies are the result of a cost-benefit analysis that discounts the interests of workers. “Environmentalists have essentially consumerized air quality,” Mr. Cass says. “We now monetize the value of clean air as something that you essentially get to consume.” For less well-off households, “the EPA is claiming that the air quality that it is delivering is worth almost as much as all of the market income a household has.”
This is the same thinking that has led some policy makers to believe UBI can be a substitute for work; in both cases, the emphasis is on people’s well-being as consumers, not the well-being that comes from having a job and doing it well.
As a result, Mr. Cass says, regulations severely undermine employment in “the segments of society that can least bear them.” Such interventions “may very well have been perfectly appropriate for the situation in the 1970s,” when the Clean Air Act was passed, but they haven’t been adapted to America’s current social challenges.
Mr. Cass thinks a consumerist bias has similarly led U.S. trade policy with China astray. Policy makers rightly judge that Chinese trade boosts Americans’ consumption power, but they haven’t dealt with the harm to the labor market as China systematically steals intellectual property and subsidizes key industries. The Trump administration is right to make Chinese mercantilism an issue, Mr. Cass says, but its response has been ineffectual. Washington needs an international coalition to confront Beijing’s bad behavior effectively, “but that becomes very hard to do when you have a Trump administration that’s pulling out of the [Trans-Pacific Partnership] and then haphazardly slapping tariffs on Europe and Canada.”
Labor policy also is out of sync with a pro-work agenda. Today, “organized labor is primarily a political force, not an economic one,” Mr. Cass says. From Democrats’ perspective, the purpose of unions is “to take the dues payments from a heterogeneous population— unionized workers are only a few points to the left of the general population—and convert it into completely homogeneous donations to Democrats.”
Yet Mr. Cass’s belief that private- sector unions ought to play a greater role is out of step with most conservatives’ views. One reason organized labor has faded in significance, he says, is that “we make all the rules in Washington.”
One-size-fits all regulation leaves little room for workers to negotiate. But revamped labor organizations could set their own terms with employers, using the federal law as a default. For example, “a retailer and retail workers might agree, overtime doesn’t get paid at time-and-a-half, but also, no more mandatory overtime, and no just-in time scheduling.” This would reduce the burden of federal regulations that stealthily increase the costs of employing people.
But even with such reforms, Mr. Cass says, “there is nothing in economic theory that says that when labor markets settle, we’re going to be at a place where we’re happy with what the outcomes look like.” That’s why he advocates a larger wage subsidy to increase workforce participation and low-end wages.
Unlike programs such as unemployment insurance, wage subsidies don’t reduce the incentive to work. His imagined subsidy would add a percentage of workers’ earnings to each paycheck up to a target amount, boosting the return on their labor. Mr. Cass would pay for this $200 billion program mostly by redirecting funds from work-replacing safety-net programs. One source of revenue might be Medicaid, which “appears to be worth maybe 25 cents to the recipient” for every dollar the government spends.
Government benefits “can start to get pretty close to what a low-wage job provides in the market,” Mr. Cass says. In contrast, a wage subsidy increases the difference in value between social programs and work so that more people choose the latter. He argues that this widened economic gap between idleness and work should be paired with a cultural one, where idleness is stigmatized and work of all kinds is valued and celebrated.
Today, he says, “being an employer of less-skilled workers is sort of a straight ticket to the exposé about how your workers don’t earn enough money.”
Mr. Cass’s critics say his laser-like focus on the labor market reflects a hostility to the creative destruction that is inherent in capitalism and necessary for growth. Why is it the government’s business if the wages or employability of a certain class of workers decline? Work determines “whether we feel that we’re respected and admired,” Mr. Cass says, “and whether we have something that we’re good at.” Technocrats haven’t yet figured out how to redistribute self-esteem.
Mr. Willick is an assistant editorial features editor at the Journal.
I am not sure I fully agree, but this article is worth consideration.
Technology advances at warp speed these days, but the antitrust bar keeps attempting a switch in time. On Monday the Supreme Court will consider in Apple v. Pepper whether to overturn decades of precedent that supports the digital economy.
A decade ago Apple revolutionized software development and the smartphone with its one-stop application shop where consumers could download games, social media and other applications. Apple assumed overhead functions for developers including protecting intellectual property and intermediating financial transactions. In return, it collects a 30% commission on app purchases.
Apple’s App Store freed developers to innovate and expanded distribution of their products— epitomizing Steve Jobs’s famous axiom that people don’t know what they want until you show it to them. The App Store launched with 500 apps but now has more than two million. Google, Microsoft and others have imitated Apple’s model to the benefit of consumers world-wide.
Yet plaintiff lawyers now want a share of the bounty. A class action on behalf of all App Store purchasers alleges that Apple monopolizes the app market and overcharges consumers by collecting the 30% commission. Plaintiffs are seeking treble damages under the Clayton Act.
The relevant precedent here is the Supreme Court’s landmark 1977 Illinois Brick Co. v. Illinois decision that bars indirect purchasers from bringing antitrust suits for “pass-through costs.” As the Court correctly reasoned, allocating “overcharges” along distribution chains is inordinately complicated, and allowing those who may be indirectly harmed by anti-competitive practices to sue could “‘open the door to duplicative recoveries.’” Since Apple doesn’t create or set the price for apps, it is a distributor. Commissions are “pass-through” costs, and developers don’t uniformly raise their prices 30%. Developers facing intense competition and elastic consumer demand may absorb the full commission, while others may charge consumers more for in-app purchases.
Consumers are indirect purchasers. The direct purchasers who would have standing to sue are app developers, yet they haven’t. Instead they argue in an amicus brief in the current case that the “developerplatform partnership is procompetitive and lowers costs for consumers.” Yet a Ninth Circuit Court of Appeals panel said app purchasers could sue and “whether app developers are direct purchasers of distribution services from Apple in the sense of Illinois Brick makes no difference.” Nor was the panel concerned that allowing lawsuits by both direct and indirect purchasers could result in duplicative damages. Somehow plaintiffs would figure out how to divvy up the pie equitably. Sure.
The Ninth Circuit ruling is an anomaly that would vastly expand antitrust liability, giving plaintiff attorneys more bites at the Apple. Online marketplaces of all sorts including e-Bay, Amazon Marketplace, and Etsy that charge sellers fees or commissions could be affected. Ditto sharing-economy services such as Airbnb and TaskRabbit.
Thirty-one states have joined a brief asking the Court to overturn Illinois Brick, which they say limits their ability to protect consumers. The Clayton Act allows state AGs to bring antitrust actions on behalf of their citizens, so reversing Illinois Brick would empower them to tap another honey pot by suing tech companies.
One irony is that state AGs persuaded the Court last term to reverse its Quill precedent and allow states to collect sales tax from remote retailers. As a result, more mom-and-pop retailers are likely to off-load their responsibility to collect sales tax to platforms in return for a commission. Yet under the Ninth Circuit’s antitrust expansion, consumers could sue platforms for doing so.
The Supreme Court in Illinois Brick invited Congress to amend the Clayton Act if Members disagreed with its decision. Congress has since modified the law several times and considered reversing Illinois Brick but failed to do so. Expanding antitrust law by judicial decree would usurp Congress’s authority to regulate commerce and disrupt innovation that has benefited millions of consumers.